Companies listed in the NYSE had to get an internal audit department ready before 31 October making sure the new audit heads could evaluate the scope of their departments work, as well as how to comply with the new Sarbanes Oxley laws. They had to hire new directors and get an audit plan ready due to the provisions made in the Sarbanes Oxley law passed in 2002. The companies had to hire personnel as well as assign the new department a budget, determine how they will document compliances and how much work to assign the audit department. Sarbanes Oxley Act of 2002 has created a revolutionary change in the corporate governance as well as internal control for companies listed in the NYSE. This Act was passed to check fraud and bring reliability to financial reporting.
The act made it mandatory for companies listed in NYSE to determine financial reporting risks, design ways to manage the risks, fix problems creating such risks, analyze the effectiveness of the control measures taken, re test and re-document anew.
Sarbanes Oxley Act had a profound impact on the internal auditors, who with their expertise in business process analysis, risk management financial and operational control testing, who were suddenly in great demand and every company seemed to need their services. Thus apart from their normal duties, the auditors found more and more of their time was taken up trying to comply with Sarbanes-Oxley provisions. Companies that correctly and intelligently utilized the expertise of auditors have seen unprecedented success as they provide valuable guidance in several aspects of running a company such as risk management, prioritizing goals, streamlining operations, device ways to cut operating costs, help the company get maximum tax benefits etc.
Sarbanes Oxley Act caused auditors to scrutinize financial reports carefully, as the consequences of reporting them wrong were severe. The companies CEO and internal Audit head had to certify the accuracy of the financial statements personally.
Sarbanes Oxley and Internal Audit:
Sarbanes-Oxley act has made it mandatory for internal audit departments to
- Be consulted regarding internal control of the company.
- Be consulted regarding enterprise risk management strategies.
- Helping the company to identify, classify, and assess the risks, eliminating risks, as well as evaluating the control methods adopted periodically.
- Recommend ways to control risks.
- Assisting in designing an internal control program for the company
- Recommending and drafting procedures for internal control of a company.
- Help maintain the control repository.
- Are project managers to all efforts taken to comply with section 404?
- Help design control effectiveness tests and help conduct the test and evaluate the results.
The act thus created a great demand for companies to have good internal audit departments and their expert counsel. The role of auditors and internal audits in managing and guiding the company increased significantly due to Sarbanes-Oxley Act. There are firms that offer services as well as products to help run businesses successfully.