Eth 321 - Sarbanes-Oxley and Corporate Governance

Sarbanes-Oxley and Corporate Governance

Learning Team B

ETH/321

March 20,2017

Instructor Laurie Wicker

Sarbanes-Oxley and Corporate Governance

The purpose of this paper is a team assignment, into which we read case 15.3 Free Enterprise Fund V. Public Company Accounting Oversight Board from our textbook. After reading we will attempt to answer the following questions. If auditing of financial statements is required for the protection of public investors, should not all PCAOB members be taken from the investment community that uses audited financial statements? Why or why not?  How does the decision in this case impact the validity of the Board and other provisions of the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act is an act that was passed by Congress and signed by President Bush on July 30, 2001. “The act mandated reforms to enhance corporate responsibility, financial disclosures, and accounting fraud”, (SEC.Gov.2013 P.1). The Sarbanes-Oxley Act of 2002, also created the Public Company Accounting Oversight Board (PCAOB), to oversee accounting professionals who provide independent audit reports for publicly traded companies. When auditing a company’s financial statements, the point is to hold the business accountable to provide correct information. The main source of accountability for managers is the financial statements of their business. This is how shareholders can see how managers are performing. Tax authorities require statements to decide the accurate accounting of tax returns filed, and banks rely on financial statements to determine the possibility of them being a credit risk. The financial statements that are audited by the PCAOB protect investors through reliable audits. Therefore, quality financial data improves investor decisions and in turn the efficiency, liquidity, and safety of the capital markets.

If auditing of financial statements is required for the protection of public investors, should not all PCAOB members be taken from the investment community that uses audited financial statements? Why or why not?

I don’t believe so. The PCAOB is in accordance with regulation guidelines which specify the importance and effectiveness of corporate governance. Which includes listing standards, investor activities, and corporate governance. Sox and PCAOB have policies which are made to promote upstanding ethical behavior. However, an organization has to reinforce a positive, ethical business culture in order to prevent inconsistency with all regulations.