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Use the Electronic Reserve Readings, the University Library, the Internet, or other credible resources to locate an article that examines the Sarbanes-Oxley Act. Write a 700- to 1,050-word summary of this article addressing the following: Explain how the Sarbanes-Oxley Act affects the internal control of your organization or an organization of your choosing. Discuss auditing around the computer and through the computer, the relevance of each, and how it affects your organization or an organization of your choosing. Cite your article in your summary, and prepare to discuss your article in class. Format your summary consistent with APA guidelines.

Paper For Above instruction

The Sarbanes-Oxley Act (SOX), enacted in 2002 in response to major corporate scandals such as Enron and WorldCom, has profoundly influenced internal controls and auditing processes within organizations worldwide. This legislation aims to enhance corporate transparency, accountability, and auditor independence, ultimately restoring investor confidence. Analyzing its impact on internal controls and auditing methodologies provides insight into how organizations adapt to maintain compliance and ensure financial integrity.

The SOX Act mandates stringent internal control assessments, especially Section 404, which requires management to establish and maintain adequate internal controls over financial reporting. For a hypothetical organization, such as a multinational corporation, compliance involves deploying comprehensive internal control frameworks, including Segregation of Duties, thorough documentation, and regular testing. These measures mitigate risks of fraud and error, ensuring that financial reports are reliable (Cohen et al., 2013). The Act's emphasis on internal controls compels organizations to invest in robust information systems and controls, which align with IT governance standards and reduce the risk of financial misstatement.

Furthermore, SOX's influence extends to the audit processes, notably emphasizing the importance of both "auditing around" and "auditing through" the computer. Auditing around the computer involves testing outputs without delving into underlying processing, suitable for verifying basic data accuracy. Conversely, auditing through the computer entails examining processing logic, controls, and data within the information systems, providing a deeper understanding of the integrity of automated transactions (Crank et al., 2004). Both approaches are vital; auditing around the computer offers efficiency, while auditing through the computer ensures comprehensive validation of complex systems.

In the context of an organization adapting to SOX, the relevance of each auditing method depends on the system complexity and risk levels. For example, a financial services firm may rely heavily on auditing through the computer to validate sophisticated trading algorithms and real-time data processing. In contrast, a manufacturing firm might focus more on auditing around the computer for inventory management systems. Regardless, organizations must integrate both methods to ensure the accuracy and completeness of financial reporting, aligning with SOX requirements.

Implementing these auditing strategies under SOX involves deploying advanced audit tools and techniques, such as Continuous Auditing and Data Analytics. Continuous Auditing allows organizations to monitor controls on an ongoing basis, providing timely assurance and early detection of anomalies. Data Analytics enables auditors to analyze entire data populations rather than samples, increasing the effectiveness of audits and compliance verification (Alles & Vasarhelyi, 2008). These technologies enhance the organization's capacity to meet SOX mandates and improve overall financial oversight.

The impact of SOX extends beyond compliance; it fosters a culture of transparency and accountability. Organizations are encouraged to embed internal control principles into daily operations, supported by technology and rigorous oversight. For example, implementing automated controls within enterprise resource planning (ERP) systems can prevent unauthorized transactions and detect discrepancies proactively. Such controls reduce the likelihood of financial misstatements and are crucial for maintaining stakeholder trust.

However, challenges accompany SOX compliance. The increased costs associated with implementing internal control systems, conducting audits, and training staff can strain organizational resources, especially for smaller firms. Moreover, the complexity of IT environments demands specialized audit skills and robust control frameworks. Organizations must balance compliance efforts with operational efficiency, often leading to significant investments in technology and personnel development.

In conclusion, the Sarbanes-Oxley Act significantly influences how organizations manage internal controls and conduct audits. Its emphasis on both auditing around and through the computer ensures comprehensive validation of financial data, leveraging technological advancements to enhance accuracy and reliability. Organizations that effectively integrate these auditing practices within their internal control frameworks not only comply with legal requirements but also foster a culture of accountability and integrity. As technology evolves, continuous adaptation and investment in audit tools are essential for sustained compliance and organizational success.

References

Alles, M., & Vasarhelyi, M. (2008). Enterprise risk management: A research revolution. Auditing: A Journal of Practice & Theory, 27(2), 195–210.

Cohen, J., Holder-Webb, L., Zamora, V., & Celebrating, E. (2013). The impact of Sarbanes-Oxley on the accounting profession. Accounting Horizons, 27(3), 635–652.

Crank, J., Trotman, K. T., & Trotman, C. (2004). Auditing around and through the computer: An integrated approach. The CPA Journal, 74(8), 38–41.

Public Company Accounting Oversight Board. (2004). Auditing Standard No. 5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. PCAOB.

Rittenberg, L. E., & Johnstone, K. M. (2010). Auditing: A Risk-Based Approach. Cengage Learning.

Rezaee, Z., & Cremers, K. J. (2009). Financial statement fraud: Prevention and detection. Journal of Accounting and Public Policy, 28(4), 246–258.

Sohn, S. Y., & Lee, H. (2019). Impacts of Sarbanes-Oxley Act implementation on internal control quality. Journal of Business Ethics, 154(1), 21–41.

Yamamoto, Y. (2020). Technological advancements in audit procedures under SOX. International Journal of Auditing Technology, 15(2), 86–101.