Sarbanes-Oxley Article

Sarbanes-Oxley Article

ACC/340

November 17, 2014

Sarbanes-Oxley Article

The Sarbanes-Oxley act affects the internal controls of all companies, some in different ways than others. In 1977, public companies were required to develop and maintain systems of internal accounting controls (Barnes and Thornburg, 2005). The act requires rules to be set for public companies and their annual internal control reports. This paper will analyze how the Sarbanes-Oxley Act affects Riordan manufacturing, auditing around the computer, through the computer, the relevance of each, and how it will affect the company.

In this situation, Sarbanes-Oxley Act influences the internal controls of Riordan Manufacturing in order to protect the companies as well as the investors. It holds senior executives responsible for the precision of a financial report. It calls for assurance and accuracy of disclosures from internal controls and instructs the audits on those controls. In addition, it requires appropriate journalism of material changes with assessments of financial circumstances created through agents. Obviously, the Sarbanes-Oxley Act intends on restoring certainty on investors on security analysis as well as discouraging others to commit fraud because of the stricter penalties.

The process of auditing around the computer follows an audit trail to the original entry of data, then follows it back again to the end or output. In an Accounting Information System, the outputs audited around the computer are financial statements. According the Sarbanes-Oxley section 404 internal control requirements, audits must be performed by an independent auditor and that same auditor must be the one that audits internal controls (Barnes and Thornburg, 2005). Auditing around the computer is a less effective method to audit because it focuses on normal transactions. Auditors of financial statements look for transactions that are exceptions to what is normal. A more effective audit goes through the computer to verify internal controls in addition to financial outputs.

When it comes to an auditor following the Sarbanes-Oxley Act through their computer system an auditor is going to make their opinions as requested. The auditor is going to be looking at the company's internal control on their financial reporting. When it comes to going through the computer system they are going to make sure that what is being reported is what they are showing in their programs. They are going to make sure that what they are basing their opinion on is stated truthfully from the management. The auditor is not just going to make one opinion on the financials that they are able to obtain through their computer system, they are going to make three different opinions. Their main purpose is to make sure that what the company is reporting to them correct information with no variance. If there is a variance then the company is going to have to explain why they are showing the differences.

The Sarbanes-Oxley Act had definitely affected the way auditors audit through and around computers. For example, section 404 of SOX requires both the CEO and CFO to assess their organization's internal controls over financial reporting and attest to them (Bagranoff, Simkin, & Strand, 2008), Section 404 is used through and around computers. One internal control of section 404 is separation of duties. There are a variety of tasks that should not be completed by just one person. The proper internal controls should include on person collecting the cash, one person documenting the transaction (journal entry), and one person make the deposit by comparing the two other individuals tasks. This action is all done around the computer. Once all the proper documentation is reported, internal controls create financial reports