The Sarbanes-Oxley Act of 2002 was enacted as a direct response to the Enron scandal. It contains a number of reforms to enhance corporate responsibility and financial disclosures and to combat corporate and accounting fraud. The “Public Company Accounting Oversight Board” was created to oversee the audit of public companies subject to the securities laws, establish audit report rules and standards, and investigate, inspect and enforce compliance relating to registered public accounting firms and the obligations and liabilities of accountants. Any public accounting firm that performs or participates in the audit report of a public company must register with the Board. The Board may impose disciplinary or remedial sanctions upon registered firms and associated persons who are in violation of the Act. The Board has jurisdiction over foreign accounting firms that prepare or furnish audit reports with respect to any issuer and audit work papers. The SEC has general oversight of the Board and the power to review Board actions, including modifying or rescinding the authority of the Board.
Other regulations created under the 2002 act are that audit partners are to be rotated on a five-year basis, and the auditor must report to the audit committee of the company. A registered public accounting firm may not perform statutorily mandated audit services for a company if the company’s senior management officials were employed by the accounting firm and participated in an audit of the company during the one year period before the beginning of the audit. In addition, the CEO, CFO and a majority of the board of directors of an issuer must certify that financial statements filed with the SEC fairly present, in all material respects, the operations and financial condition of the issuer and forfeit bonuses and compensation received following the issuer’s accounting restatement due to noncompliance with securities laws.