Public vs. Private Company Controls and SOX Audit Requirements

This report examines the implications of the Sarbanes-Oxley Act (SOX) on public and private companies, focusing on the increased costs and responsibilities associated with going public. It highlights the importance of internal controls, management's role in testing and documenting these controls, and the auditor's role in assessing their effectiveness. The report discusses how SOX and PCAOB standards affect both management and auditors, including the need for internal control reports and auditor opinions on control effectiveness. It also touches upon the potential for increased audit fees due to the added requirements. The references cited provide additional context on earnings restatements, SOX's impact on audit quality, and the attractiveness of US capital markets for foreign firms.

Public vs. Private Company Controls Standard
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Potential Impacts On The Audit Of Conforming With The
Sarbanes–Oxley Requirements
 The Sarbanes-Oxley Act (SOX) and the PCAOB auditing standards 5 will have an impact on
increasing your company cost when the company basically decides to float the shares to the
public.
 Internal controls reporting will have to apply it to your company’s both auditing and management
 As the company CEO, you will be responsible for the testing, documentation and assessment of
the company’s internal controls in regards to the financial reporting.
 This will be a costly process but will be crucial in making sure that the company has firm and
sound controls (Collins, Masli, Reitenga, & Sanchez, 2009)

Cont.…….
 As the CEO, you will be needed to write as an assessment under which the management will
acknowledge taking responsibility for the internal control backed by sufficient and concrete
documentation and evidence .
 The auditor will be collecting evidence when reporting about the effectiveness of your company
controls (Louwers, Ramsay', Sinason, Strawser, & Thibodeau, 2015).
 The auditor will also utilize a few tests that were carried out by your personnel when reporting but
the most vital evidence use will be the work of the auditor.
 This means that the auditor will be conducting a higher number of tests during the process of
auditing

Cont.……
 The applicability of both the standard and the SOX act will affect the work of the auditor as well as
that of the management (Singer, & You, 2011).
 The management also has to prepare a report to the internal controls which should be prepared after
the proper testing and implementation by the management.
 The requirement above is cast by the Sarbanes Oxley Act (Hostak, Lys, Yang, Y. & Carr, 2010).
 Additionally, the auditor has to submit a report on the internal controls applied by the management
and provide the assurance that the auditor needs to perform a test of controls and other audit
procedures.
 The opinion of the auditor solemnly relates to how effective the internal controls are as a whole.

Cont.…..
 However, as auditors we are not able to offer an accurate estimation of any extra cost to be
incurred as a result of extra work being done.
 But this aspect is evidenced in the most recent past where some firms have observed doubling of
their respective audit fees because of the significant introduction of the new work requirements
(DeFond, & Lennox, 2011).
 Overall, it is important that your board factor this probability in the cost of going public or
floating shares to the public for subscriptions.

References
 Collins, D., Masli, A., Reitenga, A. L., & Sanchez, J. M. (2009). Earnings Restatements, the Sarbanes-Oxley
Act, and the Disciplining of Chief Financial Officers. Journal of Accounting, Auditing & Finance, 24(1), 11-
34. doi: 10.1177/0148558X0902400103
 DeFond, M. L., & Lennox, C. S. (2011). The effect of SOX on small auditor exits and audit quality. Journal of
Accounting and Economics, 52(1), 21-40.
 Hostak, P., Lys, T., Yang, Y. G., & Carr, E. (2013). An examination of the impact of the Sarbanes–Oxley Act on
the attractiveness of US capital markets for foreign firms. Review of Accounting Studies, 18(2), 522-559.
 Krishnan, J., Krishnan, J., & Song, H. (2011). The effect of Auditing Standard No. 5 on audit fees. Auditing: A
Journal of Practice & Theory, 30(4), 1-27.
 Louwers, T. J., Ramsay', R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing &
Assurance Services (6 ed.). NewYork: McGraw-Hill Education,
 Singer, Z., & You, H. (2011). The effect of Section 404 of the Sarbanes-Oxley Act on earnings
quality. Journal of Accounting, Auditing & Finance, 26(3), 556-589.