Public Accounting Firms: Required Study On The Potential Effects Of Mandatory Audit Firm Rotation

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DIANE Publishing, Jan 3, 2004 - Business & Economics - 91 pages
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Following major failures in corp. financial reporting, the Sarbanes-Oxley Act of 2002 was enacted to protect investors through requirements intended to improve the accuracy and reliability of corp. disclosures and to restore investor confidence. The act strengthened auditor independence and improved audit quality. Mandatory audit firm rotation (setting a limit on the period of years a public accounting (PA) firm may audit a particular company's financial statements) was considered as a reform to enhance auditor independence and audit quality during the hearings that preceded the act, but it was not included in the act. This report studies the potential effects of requiring rotation of the PA firms that audit public companies registered with the SEC.

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Page 67 - This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. As a result, we are 95 percent confident that each of the confidence intervals in this report will include the true values in the study population.
Page 81 - Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.
Page 81 - We are responsible for obtaining reasonable assurance about whether (1) the financial statements are free of material misstatement and presented fairly, in all material respects, in conformity with generally accepted accounting principles...
Page 62 - Act of 1940, or (iii) is a national securities exchange or association registered under a statute of the United States such as the Securities Exchange Act of 1934...
Page 10 - The statutory independent audit requirement has two sides. It grants a franchise to the nation's public accountants — their services, and only their services, and certification, must be secured before an issuer of securities can go to market, have the securities listed on the nation's stock exchanges, or comply with the reporting requirements of the securities laws.
Page 18 - SAS-47 (AU 312.02) defines audit risk as "the risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated" and, therefore, the risk that financial statements will include material misstatements.
Page 67 - Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample's results as a 95 percent confidence interval.
Page 1 - To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.

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