Free Enterprise Fund Vs. Public Company Accounting Oversight Board

There were a lot of pointing fingers in the accounting scandals that plagued the economy in the 1990s within the companies involved. Congress decided to hold the CEO and CFO responsibility for any financial misreporting. This made the third most important causes of creating SOX.

In order to ensure effective regulation, the Sarbanes-Oxley legislation contains eleven sections that describe responsibilities of corporate boards (Engel, Hayes, & Wang, 2007). In case these responsibilities are not performed, criminal penalties are applied. The need for stricter financial governance laws created the global trend and such countries as Canada, Germany, France, Australia, Israel, Turkey and others also enacted the same type of regulations (Damianides, 2005). Today, the Sarbanes-Oxley legislation continues to play a fundamental role in the process of protecting the rights of investors and supporting a high level of investment attractiveness of the United States and companies that operate in the country. That is why this particular legislation can be considered as extremely benefiting for the national economy as well as investors.

The Myers v. U.S. case challenges the President’s role and power of Chief Executive. This case questions that power because as Chief Executive the President has the job of appointing federal officials into office, however it is called into question on whether or not he can remove officials as well. The Supreme Court ruled in favor of the President claiming that he did not need Senate approval in order to dismiss Myers from his appointed office.

ESSENCE OF THE STORY: The federal appeals-court recently made a ruling on PHH v. CFPB that would allow for Congress to take some of the Presidents power out of his/her scope. The court’s ruling has drawn criticism for numerous reasons but the original controversy stems back to 2008. In 2008 Congress established the Consumer Financial Protection Bureau which gave the agency the power to regulate consumer activity in the U.S.

The Sarbanes - Oxley Act of 2002 is the most important piece of legislation since the 1933 and 34 securities exchange act, affecting everything from corporate governance to the accounting industry and much more. This law was in direct response to the failure of corporate governance at Enron, Tyco, and WorldCom. The Sarbanes - Oxley seeks to bring back the confidence in all publicly held corporations to the shareholders, while placing more responsibility on CEOs and CFOs for the actions of the corporation. "Sarbanes - Oxley is more than just another piece of legislation - it has become synonymous with a new culture of corporate accountability and reform1." The SOX, as it has come to be known, covers a myriad amount of corporate

Before the Free Enterprise Fund v. PCAOB ruling, there was a double for cause removal system. The PCAOB board members and SEC commissioners were only able to be removed from their positions if there was “for cause” rationale. This rationale stated that they could only be removed for inefficiency, neglect of duties or malfeasance in office. This allowed the PCAOB board members to be independent of the SEC. This independence and job security allowed them to regulate public accounting firms without fear of retaliation.

President. In reference to judicial checks, Martin Kelly makes the observation that courts may rule that a presidential action is unconstitutional “through the power of judicial review.”

In reaction to a number of corporate and accounting scandals which included Enron Congress passed The Sarbanes-Oxley Act of 2002 (SOX) (Sarbox) also known as the "Public Company Accounting Reform and Investor Protection Act” and the "Corporate and Auditing Accountability and Responsibility Act" was enacted July 30, 2002. The Sarbane-Oxley Act is a US federal law that created new and expanded laws regarding the requirements for all US public company boards, management, and accounting firms. The act has a number of provisions that apply to privately owned companies. The Act addresses the responsibilities of a public corporation’s Board of Directors, adds criminal penalties for misconduct, and requires the SEC to create regulations that define how public corporations are expected to comply with the law. The SOX increases the penalties a company pays for fraudulent financial activity, and requires top management to provide individual verification to certify the accuracy of financial information, while also increasing the oversight role of a company’s Board of Directors and the independence of outside auditors.

Take the case of PHH Corporation. PHH appealed an unfavorable ruling by a CFPB administrative judge to the current CFPB Director, Richard Cordray . Not only did Cordray go beyond the administrative law judge’s decision to identify additional violations, but he also increased the PHH’s penalty from $6.4 million to $109 million simply for appealing the decision! The message is clear - companies cannot question the CFPB.

The separation of powers was an issue that was picked at length. In their argument, when a congressionally created entity executes in mandate in its capacity to make rules adopted by the judiciary which does not cause interference with other prerogative branches, then it bears a congressional blessing hence no violations in the separation of powers (Carter, 2013).

The government formulates various laws to achieve optimum utilization of resources in the public sphere. Sarbanes-Oxley Act is one of the numerous laws drafted to optimize resources utilization in public companies (McNally, 2013). The act seeks to attain maximization utilization of resources by entrenching accountability and transparency in the reporting of financial matters. To this end, this paper explores the effects of Sarbanes-Oxley Act on United States financial market.

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) we 'd be supportive, helpful – but if you do something wrong, watch out (Tufts)." One example of McDonough being supportive is not requiring public accounting firms to sell their tax and corporate finance practices (Michaels). To require firms to become audit only would have created animosity towards the PCAOB and further push back on any standard that the PCAOB would issue in the future. By allowing firms to keep their tax business he is reducing future conflicts and getting buy off from public accounting firms on tough auditing standards that the PCAOB is and will issue. He is trying to foster a win-win attitude. Will this approach work is hard to determine at this time. The PCAOB board is so new, only time will tell if his approach is effective or not.

Investors in publically trading companies should be protected from fraud, corruption and the intentional misleading by corporate executives concerning corporate finances. The Sarbanes-Oxley Act was passed on July 30, 2002 for the purpose of protecting investors from the risk of deceitful accounting practices by corporations. This paper discusses the background of the Sarbanes-Oxley Act of 2002 to include the when and why; as well as the intentions and purposes, and the process. It further addresses the arguments for and advantages of the law and the disadvantages. Lastly, this paper will speak to the impact of Sarbanes-Oxley in 2017 and beyond; containing the lawsuits, SOX for Not for profits and foreign countries.

The Sarbanes-Oxley Act of 2002 was created in reaction to the increasing number of accounting fraud scandals in the late nineties and early 2000 's. One example of an accounting scandal that occurred was Enron. Andrew Fastow, the CFO at the time, created phony partnerships and companies, keeping separate books for these companies. He convinced some of the major banks to invest in these companies. The Vice-President at the time, Sharon Watkins, discovered these fraudulent accounting treatments, effectively becoming a whistleblower. The fraud at Enron also caused the end of the accounting firm Arthur Anderson, which was the firm that audited the financial statements of Enron. Sarbanes-Oxley no longer allows top executives to place blame on other employees, as they are now required to sign-off on all financial statements, meaning the executives agree with all accounting treatments.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.