Sarbanes – Oxley Internal Audit on Steroids
As with most laws that pass Congress, public emotion is 90% of the law and practical function is 10%. Sarbanes-Oxley (SOx) is no exception. As with most procedures put in place by corporations, the rules and procedures are for the few who take advantage or abuse these common sense rules and procedures. The turn of the century saw corporate scandal after scandal of multi billion dollar companies where senior officials for the enhancement of their own personal wealth performed acts of fraud which ultimately resulted in bankruptcy or severe deterioration of shareholder value.
The result is SOx. SOx requires publicly traded companies to maintain certain internal control functions which should be in place whether the law exists or not. The only difference now is if it is determined that these same fraudulent actions occur in the future, the senior officials may be faced with higher jail terms and stiffer monetary penalties. From a public official’s standpoint, “My Conscience is Clear”.
SOx created the Public Company Accounting Oversight Board (PCAOB) which is a not-for-profit organization funded by the Security and Exchange Commission (SEC). PCAOB now has approximately 300 employees with an annual budget of $100,000,000. PCAOB oversees the auditors of public companies where its purpose is to “protect the interest of investors and further the public interest in the preparation of informative, fair and independent audit reports”. SOx now require that public companies evaluate and disclose the effectiveness of their internal controls and that their external auditors attest to the reliability of these controls. One significant difference now as it relates to financial statements is that the Chief Executive Officers and the Chief Financial Officers must certify to the accuracy of these statements, essentially holding them responsible for fraudulent statements. Having these checks & balances within any company strengthens that company’s value if this function is operated with its altruistic intent instead of just performing this function to fulfill SOx.
The internal audit function strengthens companies’ value by identifying certain weaknesses and modifying functions or processes to ensure those weaknesses do not occur in the future. Although the internal audit function when properly applied will detect fraud, its primary intent is not to detect fraud, but enhance the functionality & profitability of an organization. DKT Consulting, P.A. (DKTCPA) provides a review of your internal audit function to ensure compliance with SOx. DKTCPA will also design an internal audit function and assist in the hiring process of required staff if the internal audit function is not in place.