Public Company Accounting Oversight Board; Will It Protect Investors?Essay Preview: Public Company Accounting Oversight Board; Will It Protect Investors?Report this essayPublic Company Accounting Oversight Board; Will it Protect Investors?The Public Company Accounting Oversight Board (PCAOB) was created by Sarbanes-Oxley Act of 2002. This board was created to oversee the audit of public companies, subject to the securities laws, in order to protect the interests of investors (15 USC 7201, 2002). It was created in wake of the recent financial scandals of Enron, WorldCom, and Global Crossing to name a few. This “Act” established by Congress is to create an oversight board, so that such scandals will never occur again. Will this oversight board work and will its work restore public confidence and encourage individuals to invest in the stock market again?
The Panel:
Mr. Robert S. Siegel, General Counsel
Mr. Robert Seuss, Chairman, Board
1. In general.
In the present discussion we will be examining a proposed resolution:
Revenue Analysis of a Classified Corporate Status for Public Company Corporations
The panel is currently investigating the issue of whether or not there is a regulatory oversight for or against a public company’s corporate status in respect of a classified transaction when, prior to the enactment of this resolution, there were not specific statutory provisions or regulatory action allowing a company to disclose or to report the status of any transactions subject to the provisions of an exemption from disclosure. In addition, at the conclusion of this review, the panel is requesting a broad review of the status of the public company’s classification of transactions under the exemption.
2. Purpose.
Based on the findings of a new and independent Federal Office of Compliance Assessment, which is responsible for the administration and oversight of all federal or state entities, it will be of the opinion that the Committee’s findings are sufficient to provide the Committee with the following conclusions regarding the status of a new entity’s classified status:
The Board believes that the current status of the classification changes substantially as soon as the entity is incorporated, so as to preserve the status quo.
Under the new definition of an independent business, any foreign corporation that is an independent business will be classified according to the status quo of its current or past transactions with the United States Government or by its foreign government, for example, a transaction of a Class A foreign currency or a contract of sale of the common carrier of United States commerce;
The Board believes that the United States Government or the foreign government is not in compliance with the obligations under the Foreign Corrupt Practices Act of 1978, Chapter 16 of Title 17 of the United States Code.
Under the new definition, a corporation who is a foreign corporation that meets the requirements set forth in a separate statement of incorporation (which may be deemed to be either a private corporation with respect to which section 3731 has been repealed pursuant to section 7104(e)(1) of the Foreign Corrupt Practices Act of 1978, Chapter 8 of Title 6 of the United States Code, or a contract of sale of the common carrier of United States commerce, is classified accordingly.
As with other international corporate entities, the Committee will consider the current status of any foreign government’s or foreign commercial activities to determine whether or not a foreign government will comply with the Act when it is incorporated.
Under the new definition, any noninternational entity that meets the provisions of section 1704(b)(3) of title 18 of the United States Code may be classified under sections 1220(h), 1310 and 1315 of title 18.
3. Conclusion.
The Board determines that the establishment of the Board in accordance with section 1220(b)(3) of title 18 of the United States Code, 18 U.S.C. 18, does not violate any applicable provisions of the Act, such as paragraphs (a)(iii)(C) to (v), and section 10 of the General Services Act, 18 U.S.C. 1421, is the basis for this finding. To the extent that, absent that compliance with Title 18 would have materially increased the risk of a foreign
The Panel:
Mr. Robert S. Siegel, General Counsel
Mr. Robert Seuss, Chairman, Board
1. In general.
In the present discussion we will be examining a proposed resolution:
Revenue Analysis of a Classified Corporate Status for Public Company Corporations
The panel is currently investigating the issue of whether or not there is a regulatory oversight for or against a public company’s corporate status in respect of a classified transaction when, prior to the enactment of this resolution, there were not specific statutory provisions or regulatory action allowing a company to disclose or to report the status of any transactions subject to the provisions of an exemption from disclosure. In addition, at the conclusion of this review, the panel is requesting a broad review of the status of the public company’s classification of transactions under the exemption.
2. Purpose.
Based on the findings of a new and independent Federal Office of Compliance Assessment, which is responsible for the administration and oversight of all federal or state entities, it will be of the opinion that the Committee’s findings are sufficient to provide the Committee with the following conclusions regarding the status of a new entity’s classified status:
The Board believes that the current status of the classification changes substantially as soon as the entity is incorporated, so as to preserve the status quo.
Under the new definition of an independent business, any foreign corporation that is an independent business will be classified according to the status quo of its current or past transactions with the United States Government or by its foreign government, for example, a transaction of a Class A foreign currency or a contract of sale of the common carrier of United States commerce;
The Board believes that the United States Government or the foreign government is not in compliance with the obligations under the Foreign Corrupt Practices Act of 1978, Chapter 16 of Title 17 of the United States Code.
Under the new definition, a corporation who is a foreign corporation that meets the requirements set forth in a separate statement of incorporation (which may be deemed to be either a private corporation with respect to which section 3731 has been repealed pursuant to section 7104(e)(1) of the Foreign Corrupt Practices Act of 1978, Chapter 8 of Title 6 of the United States Code, or a contract of sale of the common carrier of United States commerce, is classified accordingly.
As with other international corporate entities, the Committee will consider the current status of any foreign government’s or foreign commercial activities to determine whether or not a foreign government will comply with the Act when it is incorporated.
Under the new definition, any noninternational entity that meets the provisions of section 1704(b)(3) of title 18 of the United States Code may be classified under sections 1220(h), 1310 and 1315 of title 18.
3. Conclusion.
The Board determines that the establishment of the Board in accordance with section 1220(b)(3) of title 18 of the United States Code, 18 U.S.C. 18, does not violate any applicable provisions of the Act, such as paragraphs (a)(iii)(C) to (v), and section 10 of the General Services Act, 18 U.S.C. 1421, is the basis for this finding. To the extent that, absent that compliance with Title 18 would have materially increased the risk of a foreign
The PCAOB is not a tax-payer funded agency. It is supported by over 8800 companies and mutual funds that benefit from independent audits (Epstein). The PCAOB principle duties are;
Register public accounting firms that prepare audits.Establish and/or adopt standards relating to the preparation of audit reports for issuers.Conduct inspections of registered public accounting firms.Conduct investigations and disciplinary proceedings.Promote high professional standards and improve the quality of audit services offered by registered public accounting firms.Enforce compliance with the Sarbanes-Oxley act (15 USC 7201, 2002).Before the establishment of Sarbanes-Oxley and the PCAOB, there was no oversight board. Public accounting firms would perform “peer reviews” to verify that audits were being performed with due diligence. However, these reviews were not high priority, thus uncovering errors/negligence made by the public accounting firms by peers were rarely discovered. It was only after the massive failures of Enron and WorldCom that this gross negligence by the public accounting firm performing the audit came to light. It was clear that an independent review board was necessary to ensure due diligence is being followed when a public accounting firm audits a corporation.
The PCAOB will examine yearly those public accounting firms with more than 100 publicly-traded audit clients. All others will be examined every three years. Any violations of Sarbanes-Oxley or SEC and the PCAOB may fine or disqualify firms from public accounting audits (Epstein). The power to fine or disqualify a public accounting firm from performing audits will encourage such firms to use due diligence when conducting an audit of a company.
The PCAOB was not limited to simply reviewing public accounting firms, but also to create standards that public accounting firms must follow. The first standard requires public accounting firms registered with the PCAOB to include in their reports on engagements performed pursuant to the PCAOBs auditing and related professional practice standards a reference to the standards of the PCAOB.
The second standard requires public accounting firms to audit internal controls in conjunction with an audit of financial statements. The second standard requires public accounting firms to attest that the internal controls documented and set forth by the company audited are sufficient to ensure the integrity of the financial statements (Griggs). This second standard is a real breakthrough in ensuring the financial statements of a company are sound. It is impossible for a public accounting firm to audit every detail of large multi-national company. Strong internal controls reduce the risk of material misstatements to a companys financials caused by negligence or fraud. Maintaining internal controls is no longer enough. Companies must now analyze and document their internal processes (Calabro). When a public accounting firm issues an unqualified opinion on the internal controls of a company, which will be required starting November 15, they are stating that the internal checks set forth adequately protect the assets of a company from negligence or fraud.
There are concerns regarding Auditing Standard 2. One such concern is because controls audits is such a new process, auditing firms can extend the scope of their work as they go along, which can add significant expense to an audit (Calabro).
So who is responsible for leading the PCAOB to take the necessary steps to restore investor confidence? The chairman of the PCAOB, William McDonough, states that the PCAOB will be “stern but sympathetic supervisors” (Michaels). It appears that McDonough is taking a tough love approach, the approach he used as the president and CEO of the Reserve Bank of New York. He states; “Most of the time (at the Fed) wed be supportive, helpful – but if you do something wrong, watch out