Landmark accounting reform legislation signed into law.

• Position: Legislation

High-profile business failures culminating in a media fixation on Enron called into question the effectiveness of the profession's self-regulatory process as well as the effectiveness of the audit to uphold the public trust in the capital markets. Legislation to address shortcomings in financial reporting was progressing in Congress and the sudden revelation and collapse of WorldCom guaranteed swift congressional action. President Bush on July 30 signed into law the Sarbanes-Oxley Act of 2002, the most significant legislation affecting the accounting profession since 1933.

Developing meaningful reforms that protect the public interest and restore confidence in the accounting profession has been our primary focus these past few months. We labored long and hard to communicate to the media, the public and to CPAs that we will not tolerate any AICPA member who performs substandard work and veers away from the fundamental code of ethics and responsibilities that have defined the CPA profession for more than 100 years. Our profession's core values always have been and will be: integrity, competence and objectivity. In the end, the new legislation does reflect both our influence in measures that distinguish between auditors of publicly traded companies and those of private entities as well as our goals to strengthen the capital market system and increase investor confidence.

However, it also brings uncharted waters for the CPA profession, particularly in the areas of standard setting and quality review. The AICPA has been studying these changes and has initiated efforts to help members navigate this complex situation. This article is designed to spell out some of the more significant provisions for the profession and provide an overview of resources to help you understand the changes and their impact.

Summary of Sarbanes-Oxley Act

The Sarbanes-Oxley Act (Public Law 107-204) impacts not just the large accounting firms, but any CPA actively working as an auditor of, or for, a publicly traded company or any CPA working in the financial management area of a public company. Essentially, the Act creates a five-member Public Company Accounting Oversight Board (PCAOB), which has the authority to set and enforce auditing, attestation, quality control and ethics (including independence) standards for auditors of public companies. It also is empowered to inspect the auditing operations of public accounting firms that audit public companies as well as impose...