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Public Company Accounting Oversight Board

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Public Company Accounting Oversight Board

Otis K Scales III

LAW/531

December 14, 2015
Prof. Demond Philson

Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (PCAOB) was “created as a part of the Sarbanes-Oxley Act of 2002 (SOX), which requires United States public company audits to be subject to external and independent oversight” ("What Is PCAOB?", 2013). Accounting firms must register with PCAOB to take part in audit reports for dealers, issuers and brokers. Non-U.S. accounting firms that participate in any aspect of auditing reports are subject to the PCAOB rules and regulations as well. The PCAOB has the authority to “investigate and discipline registered public accounting firms and persons associated with those firms for noncompliance with the SOX, Security Exchange Commission (SEC), and other standards” ("What Is PCAOB?", 2013). The PCAOB has four distinctive functions; registration, inspection, setting standards and enforcement of those standards.
Creation and Work of the PCAOB When it comes to the creation and work of the PCAOB, one need to think of just how each registered accounting firm and individual now must comply with the standards set forth by the PCAOB. Prior to the creation of the PCAOB, many of the accounting firms were self-regulated and often paid a sizable fee for nonaudit consultations from companies such as Enron, WorldCom and Tyco, just to name a few (Rouse, 2015). Previously accounting firms could be paid off by the public companies and adjust records as the company sees fit, but now standards must be met and all documentation to include electronic records must be saved for “not less than five years” (Rouse, 2015). As a result of this, many accounting firms have acquired a greater independence from public companies. Where the independence from public companies is now gone, a new type of dependence and more restrictions put in place by the PCAOB.

PCAOB Members The PCAOB consists of five members containing no more than two certified public accountants and no board member may receive profit for compensation from any public company or accounting firm (Mallor, Barnes, Bowers & Langvardt, 2013). While one could make an argument for having all members of the PCAOB board consist of the investment community, it would give the board a one sided view of everything. It is important to have diversity on the board, so members have the opportunity to thing outside the box and bring attention to possible issues investment community members may have not realized. The PCAOB does not directly deal with the investing portion of auditing financial statements, their job is to ensure the accounting firms are following the rules and regulations set forth by the SOX and SEC. Sometimes using an outsider’s point of view gives a better insight and makes the board more rounded. If a member(s) of the board do not work out for some reason or issue, the SEC has the authority to remove and appoint members, as well as approve the PCAOB’s budget and rules. The SEC can also appeal the PCAOB inspection and disciplinary reports and actions ("Public Company Accounting Oversight Board (PCAOB)", n.d.).
Regulatory Compliance There are two types of regulations, the first are requirements that must be met in order to become a member of an organization. In this case it is what accounting from must do in order to register with the PCAOB so they can continue to practice for public companies. The second are regulations imposed on the public companies they must follow in order to do business. Both of these regulations were created to protect citizens and create uniformity ("An Overview Of U.S. Regulations Pertains To Business Continuity", 2015).

Conclusion With the introduction of the SOX, it has forced accounting firms to take responsibility for what actions they take in accordance with the PCAOB. It is vital that situations from the past do not repeat themselves in the future and the PCAOB board is there to ensure that. If there comes a time in the future where the PCAOB is no longer needed, it can be dissolved them, but that will never happen. There will always be companies like Enron and individuals like Bernie Madoff to keep within the law.

References
An Overview of U.S. Regulations Pertains to Business Continuity. (2015). Retrieved from http://www.geminare.com/pdf/U.S._Regulatory_Compliance_Overview.pdf

Mallor, J.P., Barnes, J.A., Bowers, T., & Langvardt A.W. (2013). Business Law (15th ed.). New York City, New York: McGraw-Hill Irwin.

Public Company Accounting Oversight Board (PCAOB). (n.d.). Retrieved from http://sec.gov/answers/pcaob.htm

Rouse, M. (2015). Sarbanes-Oxley Act (SOX). Retrieved from http://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act

What is PCAOB?. (2013). Retrieved from http://searchcompliance.techtarget.com/definition/PCAOB-Public-Company-Accounting-Oversight-Board

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