The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation and a private sector that is created by Sarbanes-Oxley Act of 2002. Its main function is to oversee the audits of the public companies and other issuers to protect investors and public interest during the preparation of the informative, independent, and accurate audit reports. The PCAOB is known to oversee the audits of the broker-dealers since 2010. They file compliance reports to federal securities laws to promote investor protection. The rules and standards of all PCAOB are approved by the U.S Securities and Exchange Commission (SEC) (Lane, 2010). In this regard, the paper will explore the reasons why PCAOB members should be taken off from the investment community that uses financial statements. In addition, it will address the case of Fund v. company on how it affect the legitimacy of the board and other provisions of the Sarbanes-Oxley Act.
Many financial experts believe that the PCAOB is misnamed. They urge that the word “accounting” should not be used for the Board’s name since the Board has authority over auditing, but not over accounting principles. Few argues that the word “Public company” is not supposed to be used by the board since the board does not oversee public companies. Initially, the board has suggested that their largest impact will be on auditing standards, and the word standards should replace public company accounting. The board objective is to facilitate auditing of the company financial reports and the accounting judgments that are based on those reports. The board, therefore, is liable to inspect and register accounting firms and set auditing standards to protect the public investors as asserted by Fletcher and Plette, (2008).
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The PCAOB was created by the Sarbanes-Oxley Act of 2002 in response to numerous failures of the professional to fulfill its trusted role in corporate financial reporting. The board members have failed to obtain sufficient appropriate audit evidence to support its audit opinion on financial statements. They have also failed to give an opinion on the internal control over financial reporting. The second reasons as to why PCAOB members should be removed from investment community is that they fail to provide a quality control system. The control systems focus on issues that cause audit performance deficiencies and other aspects that could negatively impact audit quality. This is why PCAOB is currently blocked from inspecting apart from sovereignty issues. The reason why PCAOB was established was to use its insight from inspection and other oversight activities to improve existing standards. It was also set up to support high-quality audits to protect the public and investors. However, the members of the PCAOB are developing a long-term view and framework for setting standards beyond the current project list.
In this era of global network firms, the signature does not tell us the full story regarding the financial statement. The audit report of PCAOB members does not give information about how the work of the audit was allocated among firms. They require audit reports to disclose the name of the audit engagement partner as well as the identity of the other audits firms or people that provide 3 percent or more of the total hours, particularly in a recent audit. The members believe that they know much more about their audit clients than they currently are telling investors. However, there are not able to share with investors more of what they already know thus leaving their investors at stake (Fletcher and Plette, 2008). They only gather and communicates information that investors wish to obtain relating to judgments and estimates.
The case Fund v. Company decision regarding accounting oversight board affect the validity of the board and other provisions of the Sarbanes-Oxley Act in several ways. First, it deprived the president of exercising adequate control over the board. The case limits the power of the president to remove the members of the Board and preserve the constitution separation of power. The ruling affects most of the public companies that see a little less government regulation and administrative expense. It just reinforces the constitutionality and legality of the SOA. This ruling was made to win investors and accounting professionals. The ruling also fixes the constitutionality of the PCAOB by making board members subjected to “at will” removal by the SEC. Sarbanes-Oxley and PCAOB are both sustained by the ruling of the court and has rejected an appeal to the reforms that have served financial markets well (Lane, 2010).
According to Lane (2010), the court ruling prevents bad board appointments from remaining on the board. The ruling, however, does not affect the general validity of the Sarbanes–Oxley Act despite the fact that many companies may incur costs in order to comply with its provisions. Since Sarbanes –Oxley regulate many public companies. Private companies tend to feel obligated to follow at least a portion of the act’s provisions. Therefore, the validity of the Sarbanes-Oxley Act is at stake because the provisions of the act are not severable. If the provisions of the act were to be ruled unconstitutional, then the entire act would be deemed to be unconstitutional as explained by Jackson and Fogarty, (2006). Many companies were hoping that the high court would find the entire act to be unconstitutional and rule to their favor. This case has got some attorneys and company riled up for no good reason.
References
Fletcher, W. H., & Plette, T. N. (2008). The Sarbanes-Oxley Act: Implementation, significance, and impact . New York: Nova Science Publishers.
Jackson, P. M., & Fogarty, T. E. (2006). Sarbanes-Oxley and nonprofit management: Skills, techniques, methods . Hoboken, N.J: Wiley.
Lane, M. J. (2010). Representing corporate officers, directors, managers, and trustees . Frederick, MD: Aspen Publishers, Wolters Kluwer Law & Business.
University of Maryland, Baltimore. (2008). The Sarbanes-Oxley Act of 2002: Assessing its impact, charting its future . Baltimore, MD: University of Maryland School of Law.
