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State of the Audit Profession

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State of the Audit ProfessionAgendaWhat went wrong – corporate culture and reporting modelWhat went wrong – the work of auditorsWhat was the response of Congress?The Sarbanes - Oxley Act: Oversight BoardThe Sarbanes - Oxley Act: Standards SettingThe Sarbanes - Oxley Act: Independence/Scope of ServicesThe Sarbanes - Oxley Act: Banned ServicesThe Sarbanes - Oxley Act: Liability ConcernsThe Sarbanes - Oxley Act: Report on Internal ControlsThe Sarbanes - Oxley Act: Corporate GovernanceThe Sarbanes - Oxley Act: Workpaper RetentionSarbanes/Oxley ProjectsSlide 15Possible Cascade at Federal LevelSenate’s Attempt to Address State IssueOverview of the Potential ImpactHonoring our Heritage and Moving Forward…..A Revitalized Accounting CultureGetting the Right AnswerHonoring our heritage and moving forwardWhat saying NO meansOverview of Other Significant Professional DevelopmentsRecently Issued StandardsThe ASB’s Current AgendaHorizons II Task ForceWhere do we go from here?Working with Corporate AmericaResearchEducation & TrainingAdvancing Financial ReportingCorporate GovernanceConclusion -- Moving ForwardWhat the AICPA Will DoQuestions?State of the State of the Audit Audit ProfessionProfessionVirginia Accounting & Auditing Virginia Accounting & Auditing ConferenceConferencePresented byPresented byChuck Landes, CPAChuck Landes, CPAAgendaAgenda►How did we get to where we are today?How did we get to where we are today?►The provisions and implications of The provisions and implications of Sarbanes-OxleySarbanes-Oxley►The cascade effect – what’s the next The cascade effect – what’s the next front?front?►Honoring our heritage and moving Honoring our heritage and moving forwardforward►Overview of significant assurance Overview of significant assurance initiativesinitiativesWhat went wrong – corporate What went wrong – corporate culture and reporting modelculture and reporting model►Simple greed or arroganceSimple greed or arrogance►Market pressure on short term earnings Market pressure on short term earnings ►Lack of transparency or timely Lack of transparency or timely disclosures in the reporting modeldisclosures in the reporting model►Lack of mandated disclosures on Lack of mandated disclosures on management’s accounting policiesmanagement’s accounting policies►Too many rules leading to connect the Too many rules leading to connect the dots accounting and auditingdots accounting and auditingWhat went wrong – the work of What went wrong – the work of auditors auditors ►Some auditors did not step up to their Some auditors did not step up to their responsibilitiesresponsibilities►Some auditors assumed good intent on Some auditors assumed good intent on part of management part of management ►Inherent weaknesses in our Inherent weaknesses in our disciplinary and monitoring processesdisciplinary and monitoring processes►Auditor dependency on fees from Auditor dependency on fees from major clientsmajor clientsWhat was the What was the response of response of Congress?Congress?The Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Oversight BoardOversight Board►New Public Company Accounting New Public Company Accounting Oversight Board (PCAOB)Oversight Board (PCAOB)►Requires 2 CPAs (but only 2) to serveRequires 2 CPAs (but only 2) to serve►Power to set auditing rules, inspect Power to set auditing rules, inspect firms and discipline wrongdoersfirms and discipline wrongdoers►Funding from accounting firms and Funding from accounting firms and registrantsregistrantsThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Standards SettingStandards Setting►PCAOB has authority to “adopt, PCAOB has authority to “adopt, amend, modify, repeal or reject” amend, modify, repeal or reject” standardsstandards►Includes provisions for SEC oversight, Includes provisions for SEC oversight, governance and funding of FASBgovernance and funding of FASBThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Independence/Scope of Independence/Scope of ServicesServices►Proscribes eight specific services to Proscribes eight specific services to public company audit clientspublic company audit clients►Gives PCAOB authority to prohibit Gives PCAOB authority to prohibit othersothers►Other nonaudit services not banned Other nonaudit services not banned must be pre-approved by audit must be pre-approved by audit committeecommitteeThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act: Banned Services Banned Services►BookkeepingBookkeeping►Information systems Information systems design and design and implementationimplementation►Appraisals or Appraisals or valuation servicesvaluation services►Actuarial servicesActuarial services►Internal auditsInternal audits►Broker/dealer and Broker/dealer and investment banking investment banking servicesservices►Legal or expert services Legal or expert services related to audit servicesrelated to audit services►Management and Management and human resources human resources servicesservices►OtherOther services as services as determined by the determined by the board boardThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Liability ConcernsLiability Concerns►Statute of limitations extended to 5 Statute of limitations extended to 5 years from occurrence or 2 from years from occurrence or 2 from discoverydiscovery►No specific language on non-preclusive No specific language on non-preclusive effecteffectThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Report on Internal ControlsReport on Internal Controls►Requires auditor report on internal Requires auditor report on internal controls assertionscontrols assertions►Must be part of audit - not separate Must be part of audit - not separate engagementengagementThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Corporate GovernanceCorporate Governance►Mandates audit committee oversight Mandates audit committee oversight of auditsof audits►Requires CEO/CFO certification of Requires CEO/CFO certification of reportsreports►Prison terms of up to 10 years for Prison terms of up to 10 years for senior executivessenior executivesThe Sarbanes - Oxley Act:The Sarbanes - Oxley Act:Workpaper RetentionWorkpaper Retention►Auditors to retain documents in Auditors to retain documents in support of report for 7 years.support of report for 7 years.►5 yr retention requirement under 5 yr retention requirement under “criminal fraud accountability”“criminal fraud


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