72 MODULE 21 PROFESSIONAL RESPONSIBILITIES

5. Act lists several specific service categories that issuer's public accounting firm cannot legally do, even
if approved by audit committee, such as
6. Bookkeeping or other services relating to financial statements or accounting records
7. Financial information systems design and/or implementation
8. Appraisal services
9. Internal audit outsourcing services
10. Management functions
11. Actuarial services
12. Investment or broker-dealer services
13. Certain tax services, such as tax. planning for potentially abusive tax shelters
1. Board permitted to exempt (on case by case basis) services of audit firm for audit client

Note that Act does not restrict auditor from performing these services to nonaudit clients or to private
companies: Also, the Act permits auditor as a registered public accounting firm to perform nonaudit
services not specifically prohibited (e.g., tax services) when approved by issuer's audit committee
14. Act requires that both assigned audit partner having primary responsibility for a certain audit
and audit
partner who reviews audit can do the audit services for that issuer for only five consecutive years
15. If public company has hired employee of an audit firm to be its CEO, CFO, or CAO within
previous year, that audit firm may not audit that public company
7. Act requires increased disclosure of off-balance-sheet transactions
8.· Act mandates that pro forma financial disclosures be reconciled with figures done under GAAP
16. Act creates new federal laws against destruction or tampering with audit workpapers or
documents
that are to be used in official proceedings
17. Act increases protection of whistleblowers by better protections from retaliation
because of
participation in proceedings against securities fraud
18. Also, provides that employees may report securities fraud directly to audit committee to
provide
information anonymously and confidentially
19. Public Companies may not make or modify personal loans to officers or directors with few
exceptions
20. Annual reports filed with SEC that contain financial statements need to incorporate all
material -
corrections noted by CPA firms
21. Each company must disclose on current basis information on financial condition that SEC
determines
is useful to public
22. SEC authorized to discipline professionals practicing before SEC
23. SEC may censure, temporarily bar or permanently bar
him/her for
(1) Lack of qualifications needed
(2) Improper professional conduct
(3) Willful violation of helping another violate securities laws or regulations
24. Public Company Accounting Oversight Board set up to register CPAs providing auditing
services to
public entities .
25. Auditor reports to audit committee
26. Auditors to retain workpapers for five years
a. Failure to do so is punishable by prison term of up to ten years
27. Sarbanes-Oxley Act directed SEC to perform various tasks including several studies to
formulate
regulations; some of these studies have deadlines in the future and are expected to be used to promul-
gate new important regulations-others have been completed, resulted in regulations by SEC and have
force of law including the following
28. Require disclosure of differences between pro forma financial results and GAAP
29. ting policies be reported from auditors to audit committee
equire 30. SEC will tell NYSE and NASDAQ to prohibit any public company from being listed whose
th audit
"critica committee does not meet specified requirements on auditor appointment, oversight, and compen-
l" sation
acc (1) Only independent directors can serve on audit committee