Accounting Information Systems: The Processes and Controls, 2nd Edition

THE IMPACT OF THE SARBANES–OXLEY ACT ON CORPORATE GOVERNANCE (STUDY OBJECTIVE 6)

As you consider the many instances of change in the corporate governance process that have resulted from the Sarbanes–Oxley Act, bear in mind the functional context that was introduced earlier in this chapter. As a reminder, the four functional areas of corporate governance include management oversight, internal controls and compliance, financial stewardship, and ethical conduct. Each of these is revisited next.

Management oversight. The Act changes management's focus from one of strategic decision making and risk management to overall accountability. With the requirement for signed certifications of financial information, members of upper management must now be knowledgeable about many details of the organization. In the past, managers were rarely well versed on operating statistics and financial details of the company, as these types of responsibilities were often delegated to subordinates.

With the introduction of the PCAOB into the realm of management oversight, the board of directors and audit committee are also more accountable. The changes brought about by the PCAOB are significant in comparison with the public accounting profession's history of self-regulation. The Act put an end to the times when members of the board of directors could be mere figureheads, as they are now held accountable to a variety of stakeholders. In particular, the audit committee's new role places it in a unique position ...