A higher level of accountability
published: Friday | April 25, 2003
ON JULY 30, 2002, the Sarbanes-Oxley Act (ACT) was signed into law in the United States. A landmark reform, the ACT aims to restore trust in US capital markets, corporate management, corporate directors, and the professionals who serve them. It outlines new responsibilities for corporate governance, management reporting, certain public disclosures, management assessment of internal controls, and the responsibilities of auditors. The law calls for a higher level of accountability for companies that are SEC registrants (Issuers), and also for their principal audit firm, regardless of where such audit firm provides service. One of the major impact areas of the law are the rules prohibiting the principal audit firm from performing certain non-audit services for their issuer clients, and requiring audit committee pre-approval for all other audit and non-audit services. The ACT reinforces auditor independence, increases auditor oversight and broadens sanctions against auditors for wrongdoing. For the public company, the ACT creates greater transparency by upgrading company disclosures, strengthens corporate governance and expands insider accountability.
ENGAGEMENTS
Beginning May 6, 2003, the Audit Committee of Issuers must pre-approve all audit and non-audit services provided by their principal audit firm to the issuer and its subsidiaries. Audit firms and their affiliates cannot commence an engagement for an Issuer audit client (including its subsidiaries), unless the issuer's audit committee has pre-approved the engagement.
Sanctions for failure to comply are significant and are applied to the firm, partners or employees, as follows:
Revocation or suspension of the firm's registration
Person can be barred from association with any accounting firm
Limitation on activities, functions or operations of the firm or person
Civil money penalties (each violation $100K for individuals, $2M for firms
- negligent conduct $750K for individuals, $15M for firms)
Mandated professional education or training
Censure
Other criminal actions against individuals
Resignation from audit client.
Mr. Raphael E. Gordon is the Managing Partner of KPMG Peat Marwick, Past President of the Institute of Chartered Accountants of Jamaica, a member of the Public Accountancy Board, and Jamaica's representative on the Association of Chartered Certified Accountants International Assembly. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG Peat Marwick. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
