Ernst & Young: Governance is stronger, audit quality is improved ten years on with Sarbanes-Oxley

By Rob Starr, Content Manager, Big4.com

Ernst & Young LLP recently released a report – The Sarbanes-Oxley Act at 10 – that considers the legislation, discusses what it was designed to do, and analyzes its impact.

Here are some of the findings.

Audit quality has been improved by stronger alignment of independent auditors, independent audit committees, independent audit oversight authorities and public company shareholders. In a 2008 audit committee survey reported by the Center for Audit quality, 90% of audit committee members surveyed said that “they work more closely with the independent auditor” post-SOX.

Corporate governance is stronger. Prior to SOX, the process for the selection and assessment of the independent auditor typically was controlled by management. Audit committees now play an essential role in corporate governance framework by overseeing the quality and integrity of company financial statements.

Audit quality has improved because of PCAOB inspections and standard setting. As of December 31, 2011, over 2,000 audit firms from more than 80 countries were registered with the PCAOB. In 2011, the organization conducted inspections of 213 registered audit firms, and initiated an interim inspection program for broker-dealers.

Steve Howe, Americas Area Managing Partner for the global Ernst & Young organization commented:

“At this anniversary, it is important to acknowledge one of the greatest successes of Sarbanes-Oxley: the alignment of the interests of shareholders, with independent audit committees, audit oversight authorities and auditors,” he said. “Increased transparency is critical to improving audit quality, maintaining investor confidence and ensuring the strength and competitiveness of US capital markets.”