Sarbanes Oxley Act
Following the Enron financial disaster in the US where Arthur Anderson and Partner’s provided both internal as well as external auditor services, the American legislature was pressurised to address the situation. The question arose as to how Legislation could be tightened to prevent a repetition of the Enron catastrophe. All eyes were on the audit profession in the USA.
On April 24 2002 the House of Representatives in the U.S.A adopted Legislation (called the Sarbanes-Oxley Act) to promote auditor independence by prohibiting fundamental conflicts of interests.
The Act establishes a new regulatory body to oversee the accounting industry and discipline auditors, replacing the previous system in which the industry largely policed itself.
The Act also prohibits accounting firms from providing certain consulting services to companies whose books they audit. Section 201 lists nine non-audit services which may not be provided at the same time as the audit. Other non-audit services may, however, be provided if they are pre-approved by the audit committee.