The PCAOB Meets the Constitution: The Supreme Court to Decide on the PCAOB’s Conformity with the Separation of Powers Doctrine and Appointments Clause

2010 ◽  
Vol 24 (1) ◽  
pp. 79-93 ◽  
Author(s):  
Ronald R. King
Keyword(s):  
Supreme Court ◽  
Separation Of Powers ◽  
Securities And Exchange Commission ◽  
Point Of View ◽  
Board Members ◽  
Non Profit ◽  
Sarbanes Oxley ◽  
Public Company ◽  
The Future ◽  
Accounting Standard Setting

SYNOPSIS: This commentary provides an overview of the case currently before the U.S. Supreme Court that alleges constitutional problems with the Public Company Accounting Oversight Board (PCAOB). The PCAOB, a Board designed to oversee auditing for publicly traded firms, was created by Congress when it passed the Sarbanes-Oxley Act of 2002 (hereafter, SOX). To enhance PCAOB’s independence from political pressures, Congress established it as a private-sector, non-profit organization, and gave oversight powers to the Securities and Exchange Commission (hereafter, SEC), an independent agency. The plaintiffs in this case allege that Congress empowered the PCAOB with broad executive powers, yet limited the President’s ability to appoint Board members (thus violating the appointments clause of the Constitution) and to control and/or remove Board members (thus violating the separation of powers doctrine of the Constitution). The Supreme Court’s decision about the constitutionality of the PCAOB is important because of its potential impact on (1) the future of auditing oversight; (2) the validity of SOX; and (3) the future of independent agencies in general. From a policy point of view, the case highlights the importance of the combination of independence and accountability for auditing and accounting standard setting and practice.

scholarly journals Is The Pcaob a “Heavily Controlled Component” Of The Sec?: An Essential Question In The Constitutional Controversy

2009 ◽  
Vol 71 (3) ◽  
Author(s):  
Donna M. Nagy
Keyword(s):  
Supreme Court ◽  
Separation Of Powers ◽  
Free Enterprise ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Essential Question ◽  
The U.S

The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, described as “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley” or the “Act”), the Public Company Accounting Oversight Board (the “PCAOB” or the “Board”) was structured as “a strong, independent board to oversee the conduct of the auditors of public companies.” Its principal mission was to prevent the type of auditing failures that contributed to the scandals at Enron, WorldCom, and numerous other public companies in the period leading up to the passage of the Act.

Auditor Independence: A Focus on the SEC Independence Rules

2008 ◽  
Vol 23 (2) ◽  
pp. 247-260 ◽  
Author(s):  
Audrey A. Gramling ◽  
Vassilios Karapanos
Keyword(s):  
Audit Committee ◽  
Financial Statements ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Background Information ◽  
Instructional Resources ◽  
Sarbanes Oxley ◽  
Policy Goals ◽  
Public Company ◽  
Securities Laws

Auditor independence is an important underpinning of the federal securities laws. These laws require that registrants' financial statements filed with the Securities and Exchange Commission (SEC) be audited by independent public accountants. The focus on independence for public company auditors was increased in light of the requirements of the Sarbanes-Oxley Act of 2002 to strengthen auditor independence. These instructional resources provide background information on the current SEC auditor independence rules. After becoming familiar with these rules, you will have the opportunity to complete several case scenarios that address: (1) hypothetical settings that may represent violations of the SEC independence rules, (2) possible actions that an audit committee might take when it determines that the SEC independence rules may have been violated, and (3) possible alternatives to the current SEC independence rules that could achieve the desired public policy goals of objective audits and investor confidence.

An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers

2010 ◽  
Vol 29 (2) ◽  
pp. 233-252 ◽  
Author(s):  
William F. Messier ◽  
Thomas M. Kozloski ◽  
Natalia Kochetova-Kozloski
Keyword(s):  
Securities And Exchange Commission ◽  
Future Research ◽  
Audit Process ◽  
Accounting Firms ◽  
Professional Skepticism ◽  
Quality Review ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Public Company ◽  
Quality Control Mechanism

SUMMARY: Engagement quality review is an integral part of the audit process. It is designed to be a quality control mechanism for assessing the quality of an audit engagement. Since the 1990s, the Securities and Exchange Commission (SEC) has increased sanctions against partners serving as engagement quality reviewers. Recently, the Public Company Accounting Oversight Board (PCAOB) issued an auditing standard on engagement quality review as required by Section 103 of the Sarbanes-Oxley Act of 2002. This practice note reports on an analysis of SEC and PCAOB enforcement actions against engagement quality reviewers (EQRs). Our results show the following: We identified 28 cases since 1993 that involve some type of sanction against an EQR. Only eight cases involved the Big 4/5 public accounting firms. All of the 28 cases involved sanctions due to violations of GAAS and 75 percent contained GAAP violations. Twenty-three cases identified GAAS violations related to a lack of due professional care. Further analysis of those cases showed that the EQR demonstrated a lack of professional skepticism in 22 cases, over-relied on management representations in 20 cases, and ignored materiality concerns in five cases. About half of the 28 cases resulted in the EQR being denied the privilege of practicing before the SEC or PCAOB for three or more years. Our findings provide important implications for practitioners and regulators, and areas for future research for those interested in engagement quality review.

scholarly journals A Review Of Going Concern Prediction Studies: 1976 To Present

2011 ◽  
Vol 5 (5) ◽  
Author(s):  
Jodi L. Bellovary ◽  
Don E. Giacomino ◽  
Michael D. Akers
Keyword(s):  
Model Development ◽  
Probit Analysis ◽  
Securities And Exchange Commission ◽  
Logit Analysis ◽  
Font Size ◽  
Primary Methods ◽  
Going Concern ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Going Concern Opinion

<p class="MsoNormal" style="text-justify: inter-ideograph; text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic; mso-bidi-font-size: 12.0pt;"><span style="font-family: Times New Roman;">In 1962, the Securities and Exchange Commission (SEC) was the first to address going concern issues with Accounting Series Release (ASR) No. 90.&nbsp;&nbsp; Then, in 1963, the AICPA issued Statement on Auditing Procedures (SAP) No. 33, in response to ASR No. 90.&nbsp; Both ASR No. 90 and SAP No. 33 addressed qualifications for issues that were unresolved and the results of which were indeterminable at the statement date. Soon after the issuance of Statement on Auditing Standards (SAS) No. 2 in 1974, researchers began to conduct studies on going concern issues.&nbsp; This paper provides a comprehensive review of the literature on going concern studies and updates studies by Mutchler (1983) and Asare (1990) which provide detailed reviews of the evolution of the going concern report and requirements of the standards related to auditors' assessment of going concern.&nbsp; Since SAS No. 2, the profession has not provided additional guidance on going concern.&nbsp; Even the Sarbanes-Oxley Act of 2002 (SOX), makes no modifications to the requirements for considering going concern and the Public Company Accounting Oversight Board has not issued guidance addressing going concern. Starting with the first going concern prediction study [McKee, 1976], this paper identifies 27 models developed for predicting the going concern opinion and identifies the primary methods used for model development; multivariate discriminant analysis (MDA), logit analysis, probit analysis, and neural networks are.&nbsp; This paper also identifies; the most popular type of focused model and identifies three non-U.S. firm models, the number of factors considered in any one study,&nbsp; and the predictive abilities of the models. The paper also provides an annotated bibliography for the 27 models.</span></span></p>

SEC whistleblower retaliation – and the federal securities laws – after Digital Realty

2018 ◽  
Vol 19 (3) ◽  
pp. 22-32 ◽  
Author(s):  
Aegis Frumento ◽  
Stephanie Korenman
Keyword(s):  
Supreme Court ◽  
Federal Court ◽  
Securities And Exchange Commission ◽  
Federal Courts ◽  
Content Type ◽  
Securities Law ◽  
Sarbanes Oxley ◽  
The Supreme Court ◽  
History Of ◽  
Securities Laws

Purpose The purpose of this paper is to analyze the Supreme Court’s recent decision in Digital Realty Trust, Inc v. Somers and its significance for whistleblower retaliation remedies and securities law interpretation generally. Design methodology approach The authors review the statutory, regulatory and decisional history of the anti-whistleblower retaliation remedies of the Sarbanes–Oxley Act and the Dodd–Frank Act; how they were seen by the US Securities and Exchange Commission (SEC) and most courts to be in conflict, and how they were ultimately harmonized by the Supreme Court in Digital Realty. Findings In Digital Realty, the Supreme Court ruled against the SEC and the leading Courts of Appeal and established that only one who reports securities law violations to the SEC can sue in federal court under the Dodd–Frank Act; all others are limited to the lesser remedies provided by the Sarbanes–Oxley Act. This simple conclusion raises a number of unresolved questions, which the authors identify and discuss. Also, the Supreme Court unanimously continued the pattern of federal securities laws decisions marked by a close reading of the text and a desire to limit private litigants’ access to the federal courts. Originality value This paper provides valuable information and insights about the legal protections for SEC whistleblowers from experienced securities lawyers and more generally on the principles that appear to guide securities law decisions in the Supreme Court.

Engagement Quality Reviews: A Comparison of Audit Firm Practices

2007 ◽  
Vol 26 (2) ◽  
pp. 167-181 ◽  
Author(s):  
Kathryn K. Epps ◽  
William F. Messier
Keyword(s):  
Securities And Exchange Commission ◽  
Accounting Firms ◽  
The Public ◽  
Quality Review ◽  
Audit Review ◽  
Audit Planning ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Quality Control Mechanism

Engagement quality (concurring partner) review is an important part of the audit review process. It is one quality control mechanism used by public accounting firms to monitor the quality of audit engagements. The engagement quality reviewer serves as an evaluator of the performance of the engagement partner and engagement team. Concerns about the effectiveness of existing firm concurring partner review practices have led to increased partner sanctions imposed by the Securities and Exchange Commission (SEC). In addition, Section 103 of the Sarbanes-Oxley Act of 2002 directs the Public Company Accounting Oversight Board (PCAOB) to develop an auditing standard on engagement quality review. This practice note reports on an analysis of six major firms' written guidance and practice aids for engagement quality review. Our comparison of the firms' guidance shows some differences in the assignment of engagement quality reviewer, the participation of the engagement quality reviewer in audit planning, the extensiveness of practice aids, and the involvement of engagement quality reviewer during the course of audit engagements. Lastly, we identify a number of research questions and practice implications.

scholarly journals The Sarbanes-Oxley Act And German Non-Profit Organizations: An Empirical Investigation

2012 ◽  
Vol 10 (7) ◽  
pp. 419
Author(s):  
Thomas Wilhelm Hasenpflug
Keyword(s):  
Decision Makers ◽  
Board Members ◽  
Chi Square ◽  
Non Profit ◽  
For Profit ◽  
International Scope ◽  
Stakeholder Groups ◽  
Sarbanes Oxley ◽  
Corporate Governance Mechanisms ◽  
Non Profit Organizations

Drawing on a survey of German non-profit organizations, this paper explores the state of implementation of corporate governance mechanisms by focusing on the organizations profiles. Subject of the research are those mechanisms as developed in the 2002 Sarbanes-Oxley Act for the for-profit sector which have since also been implemented for non-profit sector organizations. In applying chi-square tests, the association between the existence of these practices and a range of organizational characteristics was reviewed and the most influential characteristics were identified. This association of characteristics and practices explains a potential compliance of an organization. Such knowledge can be applied by a number of stakeholder groups, such as organizational decision-makers, legislators and sponsors. The identified characteristics, in order of importance, were annual revenue, age of the organization, existence of an international branch structure, organizations board members being active in the private sector, and organizations having an international scope of activities.

scholarly journals Abusive Tax Shelters And Government Misconduct

2012 ◽  
Vol 10 (12) ◽  
pp. 665
Author(s):  
William A. Bottiglieri ◽  
Huldah A. Ryan ◽  
Andrew S. Griffith
Keyword(s):  
Securities And Exchange Commission ◽  
Accounting Firms ◽  
Accounting Professionals ◽  
Tax Shelter ◽  
Sarbanes Oxley ◽  
Tax Shelters ◽  
The Future

Congress reacted quickly to the accounting professions involvement in the Enron/Tyco International financial collapses in 2001. The Sarbanes-Oxley Act of 2002 was enacted and the Securities and Exchange Commission promulgated new reporting regulations aimed at preventing such losses in the future. A more remote effect occurred a year later in 2003 when Congress enacted sweeping reforms affecting the tax shelter industry. Congress targeted accounting firms and related professionals who created, marketed and sold abusive tax shelters. While the culpability of these professionals was clear the resulting criminal prosecutions against some of the accounting professionals were tainted by an overzealous prosecution which relied on unconstitutional tactics to obtain convictions.

The Obvious Foundation Test

2018 ◽  
pp. 109-121
Author(s):  
Raju Ramachandran ◽  
Mythili Vijay Kumar Thallam
Keyword(s):  
Supreme Court ◽  
Constitutional Law ◽  
Separation Of Powers ◽  
Basic Structure ◽  
Legislative Power ◽  
Judicial Appointments ◽  
The Supreme Court ◽  
The Future

This essay deals with the ramifications of the judgment in the National Judicial Appointments Commission Case for the basic structure doctrine. The doctrine of basic structure places limits on the legislative power to amend the Constitution, and owes its origins to the judgment of the thirteen-judge bench of the Supreme Court in the Kesavananda Bharati v. State of Kerala ((1973) 4 SCC 225). According to the authors, the judges in the NJAC Case, by striking down the 99th Amendment to the Constitution of India for violating the basic structure, appear to have conceptually expanded the remit of the basic structure doctrine significantly. They conclude that the contents of what was held to be part of basic structure in the NJAC Case are largely incapable of being defended normatively. Against this background, they chart the significance of the judgment on constitutional law and separation of powers questions in the future.

SEC “claws back” bonuses and stock sale profits from CFOs of public company charged with accounting fraud

2015 ◽  
Vol 16 (2) ◽  
pp. 38-40
Author(s):  
Mary P Hansen ◽  
Garrett Trego
Keyword(s):  
Securities And Exchange Commission ◽  
Incentive Compensation ◽  
Chief Financial Officers ◽  
Accounting Fraud ◽  
Content Type ◽  
Personal Involvement ◽  
Sarbanes Oxley ◽  
Public Company ◽  
The Us ◽  
Enforcement Authority

Purpose – To explain an increasingly common practice of the US Securities and Exchange Commission (SEC) by which it seeks to “claw back” bonus and incentive compensation paid to CFOs of companies charged with accounting fraud, regardless of the personal involvement, knowledge, or culpability of the CFOs. Design/methodology/approach – This article details the facts underlying a recent SEC accounting fraud settlement through which two former CFOs of a company charged with fraud agreed to repay their bonuses and incentive compensation, despite not having been accused of any wrongdoing. The article goes on to outline the historic use of Section 304(a) of the Sarbanes-Oxley Act of 2002 (SOX), the provision that endows the SEC with this enforcement authority, in search of guidance for when and why the SEC may choose to exercise its authority under this provision. Findings – The SEC’s inconsistent use of its enforcement authority under Section 304(a) leaves chief financial officers potentially subject to individual liability and ill-equipped to modify their behaviour in order to prevent it. Originality/value – This article intends to raise industry awareness about the potential exercise of the broad enforcement power available to the SEC under Section 304(a) and call attention to the lack of guidance provided to corporate officers to avoid liability under this provision.

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