|Categories:||Company Management Corporate governance|
The free enterprise fund and the public company accounting oversight board had a case where the free enterprise fund accused the PCAOB of violating the appointments clause because it deprived the president from controlling this board. The free enterprise board argued that the PCAOB should be under the president. however, the board was under the security and exchange clause which was under the president since all the commissioners were appointed or removed by the president. The non-governmental organization, free enterprise fund lost the case since the court held that the board did not violate the appointments clause since the board was under the security and exchange clause and the clause was under the president, since as mentioned earlier, the commissioners of this clause were appointed and removed by the president.
The PCAOB was created with the aim of reducing the failures of people in this profession to fulfill their role in auditing as well as corporate financial reporting (Avellanet 2008). There were many reported frauds, which led to a crisis, and people had lost confidence in the integrity of the financial markets (Green 2004). The PCAOB yielded positive results and some other countries adopted this method. The role of the board was to ensure that accounting firms were registered if they are to issue or prepare audit reports. It is important that public investors are required to have auditing of financial statements for their protection. Public accounting firms that have been registered by the board are expected to provide assurance that the financial statements present the correct financial results of a company while ensuring the accounting standards and rules are met.
PCAOB members are not all taken from the investment community, despite the fact that this investment community use financial statements. One would ask why the members of the board are not taken from investment communities that use financial statements. This is because the board is an independent organization that ensures those issuing financial statements have met specifications that will reduce the number of fraud cases that occur from companies being issued with wrong financial statements (Fletcher & Plette 2008). Members of the board should not be taken from the investment community because this will not guarantee fairness. The members will work or come up with regulations that will probably favor them and not consider the wellbeing of all public investors. The board has to ensure that all regulations are met, they focus on internal inspections of the companies, the firms management and firms processes with aspects to auditing. Taking investors and making them members of the board, will not ensure efficient use of the board to carry out its work. Having neutral people as members of the board is more efficient, this is because they will not be biased in anyway, they do not gain or lose from any situation that may arise. It is easier for the board to reduce fraud and fulfill the role it was formed for to begin with, with neutral members.
The decision to get neutral members impacts the validity of the board in the sense that, it ensures fair running of the board. By having neutral members running the board, the work is carried out more efficiently compared to having members who gain by running the board in a specific way. Although the cases of bribery are still heard from time to time, it could be worse if the members were picked from the already available financial investors. Another reason why members impact the validity of the board and the other provisions of the Sarbanes Oxley act is because having investors will go against the role of the board to begin with. The whole idea was to reduce the number of frauds taking place. Neutral investors have a better chance of coming up with ideas to make the board better. This is because they will ensure that the work done is better and works in favor of all. Having investors in the board will not lead to new ideas because they will just focus on themselves. Having people who will not be impacted by the decisions that are taken will ensure that both the needs of the investors and the firms issuing the financial statements are met. They will also come up with new ideas to make it better for both parties to benefit from the board effectively.
PCAOB is a very important board that ensures investors are not duped by firms. It is also important because it caters for the needs of both parties without favors. PCAOB also play a role in reducing the cases of bribery that occur especially if the members were picked from the investment communities that use audited financial statements. It is very vital for firms to sign up and become part of the PCAOB because they also benefit from this board. Another importance of the PCAOB is the fact that it identifies deficiencies found in accounting and finds ways to change them. The inspections carried out by the board from time to time have drastically reduced fraud cases, especially because of the harsh disciplinary actions taken against the unregistered members and even the registered members who violate the rule.
Avellanet, A. W., & Public Company Accounting Oversight Board. (2004). Guide to the PCAOB internal control standard. New York, N.Y: Warren, Gorham & Lamont
Fletcher, W. H., & Plette, T. N. (2008). The Sarbanes-Oxley Act: Implementation, significance, and impact. New York: Nova Science Publishers.
Green, S. (2004). Manager's guide to the Sarbanes-Oxley Act: Improving internal controls to prevent fraud. Hoboken, N.J: Wiley.
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