Impact to Accountancy Profession

Global
• Sarbanes-Oxley Act of 2002
– Also known as the “Public Company “Public
Company Accounting Reform and Investor
Protection Act” and “Corporate and Auditing
Accountability, Responsibility, and Transparency
Act”
– signed into law by President Bush
– Named after its sponsors – Sen. Paul Sarbanes
and Rep. Michael Oxley
• Sarbanes-Oxley Act of 2002
– Purpose is to expand regulatory oversight and
guidance for auditors, lawyers, and analyst, as well
as to address many structural corporate reforms
necessary to reinforce safeguards against
corporate fraud.
 Global
• Sarbanes-Oxley Act of 2002
– Highlights
• Creation of Public Company Accounting Oversight
Board (PCAOB)
• Corporate executive accountability
• Nonaudit services
• Retention of work papers
• Auditor rotation
• Conflict of Interest
• Sarbanes-Oxley whistleblower law
 Global
• PCAOB
– The PCAOB was created as a safeguard for the
prevalence of accounting “restatements” by
public companies during the 1990s to early 2000s.
Recall that the top management of Worldcom is
guilty of the aforementioned offense, as during
investigations conducted on Worldcom, CEO
Bernie Ebbers and CFO Scott Sullivan wield the
power to adjust accounting records with only a
phone call to the accounting department.
• Section 404: Assessment of Internal Control
– A huge factor of why the fraudulent financial
reporting of Worldcom has gone unreported for
so long is because of its weak internal control,
wherein decisions are made solely by top
management. The executives are also given the
ability to restate accounting records, grant loans
to CEO Ebbers, and use creative accounting in
order to overstate revenue while understating
expenses at the same time.
• Section 204: Auditor Reports to Audit
Committees
– Prevents the board of directors from reasoning out
that they know nothing about the financial
statements, which is an excuse that has been used
during the litigations on Worldcom.
– In Worldcom, the members of the audit committee
are mostly cronies of Bernie Ebbers, which gave the
aforementioned CEO enough leeway to exert his
influence on audit matters of the company.
• Auditor Independence
– Solves the problem of accounting firms developing
close ties with the companies they are
auditing, such as Arthur Andersen overlooking
discrepancies within Worldcom simply because
they have been auditing said company since 1990.
• Higher Accountability for Corporate and
Criminal Fraud
– Worldcom not showing Andersen the electronic
copies of its accounting books, which would have
revealed the accounting fraud sooner.
 Philippines
• Currently, the practice of accountancy in the
Philippines is state-regulated in accordance
with The Philippine Accountancy Act of 2004.
• Proposed amendments to the law were
incorporated in a proposed bill filed with the
17th Congress.
 Accountancy Regulatory Office
• May be considered the country’s version of
the US PCAOB
• Under the supervision and administrative
control of the Professional Regulation
Commission or any other government office
 ARO powers functions and
responsibilities
• To conduct an oversight into the quality of audits
of financial statements and operations of
certified public accountants though a quality
assurance review of the control and practice
operational measures instituted by auditors in
order to ensure compliance with the accounting
and auditing standards, rules, regulations and
practices. For this, the ARO may disclose the
results of the review it has conducted to provide
feedback to the certified public accountants on
their practice of profession
 ARO powers functions and
responsibilities
• To supervise the practice of accountancy in
the Philippines
• To issue, suspend, revoke, reinstate the
Certificate of Accreditation that may be
prescribed for the practice of the accountancy
profession
• To administer and implement the Continuing
Professional Development Program
 ARO powers functions and
responsibilities
• To adopt an official seal of the ARO
• To monitor the conditions affecting the practice
of accountancy and adopt such measures,
including promulgation of, rules and regulations
and best practices as may be deemed proper for
the effective regulation of the accountancy
profession. That, the special requirements of
Micro ,Small and Medium Business Enterprises
shall be considered in the promulgation of the
standards, rules and regulations
 ARO powers functions and
responsibilities
• To implement a Whistleblower Program that will
encourage the reporting of instances of
violations of the provisions of this Act , standards
and implementing rules and regulations
• To pursue the development and upliftment of
the public practice of the Small and Medium
Practitioners (SMP), including but not limited to
the consolidation, merger of strengthening of the
organization of the SMPs
 Philippine Corporate Governance
• Securities Regulation Code (SRC) 2001
– Important Provision
• the institutional strengthening of the SEC and the
strengthening of its prosecution and enforcement
powers
• the clarification of the scope of insider trading and
market manipulation, protection of minority investors
through the requirement of a mandatory tender offer
• the delegation of certain regulatory powers to self-
regulatory organizations (SROs) such as the PSE.
 Philippine Corporate Governance
• Memorandum Circular No. 2, Series of 2002
– known as the Code of Corporate Governance and
the Manual of Corporate Governance
– aimed to provide guidance to companies in the
formulation of their governance rules and
practices.