Discuss how SEC rules affect the legal and the ethical ...

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Discuss how SEC rules affect the legal and the ethical relationship between accountants and the companies they audit.

Question 2

Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?
 A) Congress established the Public Company Accounting Oversight Board, which has the authority to regulate public accounting firms, establishing audit rules and ethics guidelines.
 B) After five years with a client, the lead audit partner must rotate off the account for at least five years.
 C) Congress established the American Institute of Certified Public Accountants to develop ethical guidelines in a Code of Professional Conduct.
 D) Auditors must communicate regularly and completely with audit committees of their clients and must describe options the firm considers in preparing financial statements.

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Answer to Question 1

The SEC rules require accountants to maintain independence from their clients. The accountant must be able to exercise objective and impartial judgment on all issues. One way to ensure this is by forbidding an auditor or the auditor's family from maintaining a financial or business relationship with the client. Specifically, the SEC rules prohibit accountants or their families from owning stock in a company that their firm audits. SEC rules of practice say that an accountant who engages in unethical or improper professional conduct may be banned from practice before the SEC. Banned or suspended auditors cannot perform the audits required by the 1933 and 1934 Securities Acts.

Answer to Question 2

C