Accounting

Sarbanes Oxley act also referred to as the public company accounting reform and investor protection act was formulated and enacted to law in the year 2002 following the collapse of major corporations such as WorldCom and Enron during this period. The main intention for the formulation of the Sarbanes Oxley act was to punish and deter accounting and corporate corruption and fraud, protect the shareholders and workers interests and ensure that justice is carried out for wrongdoers. Sarbanes Oxley act will have a great impact to our company, ABC Company, a manufacturing firm dealing with production of household goods and accessories. Under section 404 of this act, companies are required to make yearly assessment on internal control over reporting and also to have such assessment being attested to by independent auditor of the company after reviewing them. Being a medium sized company, the cost of ABC Company is bound to increase. Assessment of internal control is a detailed and labor intensive process that may require training of employees to carry out this function. Hiring an independent auditor to verify the assessment after reviewing them is also a costly venture. As such, internal control assessment is bound to become more costly (Cerullo  Cerullo, 2003).

One of the major benefits or positive impact that the Sarbanes Oxley act would have on the internal control in my company is that it would lead to increased efficiency. Sarbanes Oxley act requires continuous assessment and reporting on the status of the internal control to the public. With this continuous assessment, my company will be in a position to spot all discrepancies and shortcomings in the internal controls and correct them on time hence avoiding costs associated with wrong valuation of stock. Improved internal control systems would also improve the public image of my company hence increasing its goodwill and sales.

Sarbanes Oxley act is meant to check on corruption and fraud in an organization by ensuring that all the internal controls are working correctly. Improved internal control systems as a result of Sarbanes Oxley act and other reforms would enable ABC Company manage risks efficiently and avoid its failure as a result of fraud or corruption. An improvement in the internal controls of ABC Company as a result of compliance with Sarbanes Oxley act would also improve the investor confidence since all such improvements are made public (Cerullo  Cerullo, 2003).

Auditing around the computer and through the computer
Auditing around the computer refers to any form of audit that takes the assumption that computers are right hence only non computerized information is audited, or carries out correction of information like inventory based on the results given by the computer. This kind of audit is quick and simple as only non computerized information gets to be audited. It can also be cost effective to an entity. However, using this audit approach in ABC Company would have various negative impacts. To begin with, auditing around the computer is ineffective especially for manufacturing companies such as ABC Company. In our company, inventory information is computerized. Using this approach, it would mean that audit would not be carried out on such information. Throughout the year in my company, inventory is lost via counting errors, breakage and theft and as such, a physical inventory needs to be carried on an annual basis to correct computerized quantities obtained in a year (Donaldson, 2005).

Auditing through the computer is the complete opposite of Auditing around the computer. This approach uses the computer to verify all information. An auditor using this method follows all audit trails via the internal operations of a computer, tries to verify that all the controls of processing are functioning and lastly tests whether the controls are able to prevent errors. This is an efficient and effective auditing method although it can be costly and time consuming as compared to Auditing around the computer. This approach of auditing would benefit ABC Company in that it would help in ensuring that all computer process are working well and are able to prevent errors. This approach also identifies potential weaknesses in the internal controls hence allowing for timely corrective measures to be taken (Donaldson, 2005).