Question 62

Accounting firms auditing public companies cannot provide several non-audit services to their audit clients.

Under the Sarbanes-Oxley Act, accounting firms that audit public companies are prohibited from providing certain non-audit services, such as internal-audit outsourcing, to ensure independence and avoid conflicts of interest.

A) The firm cannot audit a company for more than five years

This statement is incorrect as Sarbanes-Oxley does not impose a strict five-year limit on audits. Instead, it requires a rotation of the lead audit partner every five years to enhance independence, but firms can continue to audit the same company beyond that timeframe as long as the lead partner changes.

B) The firm cannot provide several non-audit services, such as internal-audit outsourcing, to its audit clients

This statement is correct. Sarbanes-Oxley explicitly restricts accounting firms from providing certain non-audit services, including internal-audit outsourcing, to their audit clients to maintain auditor independence and prevent conflicts of interest.

C) The firm cannot use any forms of advertising to obtain new audit clients

This option is incorrect. Sarbanes-Oxley does not prohibit accounting firms from advertising their services. While the profession adheres to standards regarding advertising ethics, there is no blanket ban on the use of advertising to attract new clients.

D) The firm cannot be retained only by the CFO

This statement is also incorrect. Sarbanes-Oxley does not stipulate who can retain an accounting firm for audit services. While it emphasizes the importance of independence, it does not restrict the hiring process to ensure that a CFO alone cannot make such decisions.

Conclusion

The correct answer, B, highlights a key requirement of the Sarbanes-Oxley Act aimed at ensuring auditor independence by restricting the provision of non-audit services to audit clients. Options A, C, and D fail to accurately reflect the provisions of the act, making B the only valid choice regarding the requirements placed on accounting firms auditing public companies.