The Sarbanes-Oxley Act’s proposals

In the United States, the Sarbanes-Oxley Act’s proposals for better corporate governance include the following:

- A new oversight board for the accountancy profession: the Public Company Accounting Oversight Board (PCAOB).

- Certification by chief executive officers (CEOs) and chief financial officers (CFOs) regarding financial statements and internal controls.

- A tightened definition of “independent” audit committee members. - A requirement for external auditors to report directly to the audit committee.- Prohibitions on certain no audit services by external auditors/- Tougher penalties for financial statement fraud.

Purpose of auditing- The purpose of an audit is to provide an objective independent examination of the

financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements

Auditor’s liability - Auditors can be subject to three kinds of liability- civil liability, criminal liability, and

professional sanctions. Civil liability arises when auditors break contractual or civil obligations or both, and criminal liability arises when they engage in criminal acts, such as intentionally providing misleading information.