Sarbanes-Oxley and Corporate Governance Paper

Sarbanes-Oxley and Corporate Governance

Administrative agencies are defined by Reed, et.al (2016) as the entities that make up the governmental bureaucracy. These agencies fall under quasi-legislature regulations where rules can be issued and or quasi-judicial where court-like decisions are made. The purpose of administrative agencies according to Reed, et.al (2016), is to “create and enforce the majority of all laws constituting the legal environment of business”. (p.473). One of the many reasons administrative agencies exist is to protect the public from the business community. “A prevailing

attitude exists that the government’s duty is to protect the public from harm.” In addition, the administrative agencies provide, specify or offering details to regulations and legislature. Expertise is also provided by administrative agencies to help develop sound and consistent policies. They also provide regulation and service in their appointed areas. (Reed, et. Al, 2016, p.475) The committee, Protecting Investors through Audit Oversite (PCAOB), is considered an administrative agency with the purpose of protecting public investors through financial audits.

Free Enterprise Fund v. Public Company Accounting Oversight Board

The Sarbanes-Oxley Act was put into place in 2002, by Congress to measure, and change the poor accounting practices of many public companies. (Reed et. Al, 2016 p. 455). This specif case is regards to the Public Company Accounting Oversight Board (PCAOB). The case was based on the questioning of whether the PCAOB was constitutional due to how it’s members were appointed (from the public sector). Although not supervised by a governing agency, the PCAOB members may be removed following the same guidelines as many other administrative agencies which some felt may be unconstitutional and a conflict of interest. (Reed, et.al, 2016, p. 478).

According to their own website, the PCAOB, “to establish auditing and related professional practice standards for registered public accounting firms to follow in the preparation and issuance of audit reports.” There are 18 standards for overseeing auditors and accounts of public companies. They include: taking the documentation for review, reporting on weaknesses, auditing internal controls and financial statements, and evaluating consistency of financial statements. (Standards section, 2016)

The PCAOB was created to allow recruiting of its members from the private sector which includes the accounting and investment communities. While they are government employees, board members are not subject to direct SEC supervision. This is important because they can focus on providing their auditing services and expertise