Analysis of Public Company Accounting Oversight Board
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Analysis of Public Company Accounting Oversight Board
Mary Baker
Law 531
Alice L. King, J.D., M.B.A.
March 28, 2016
Analysis of Public Company Accounting Oversight Board
The Sarbanes-Oxley Act, commonly referred to as SOX, created a new set of standards to be used in ensuring the compliance of publicly traded companies in the area of financial statements and reporting. While the SOX rules were spurred onto the center stage by a string of financial reporting scandals that topped headlines for months and the companies involved became known as household names for the wrongdoing that even sent some top executives to prison, the rules have more purpose than simply preventing these scandals (Beasley, 1996). The idea behind the SOX accounting and reporting standards is to protect the public that invests in public companies from investing based on skewed financial data. The rules contained within the SOX are designed to make sure that financial statements actually reflect the true financial situation of the company that is reporting the data (Levitt, 1998). In a perfect world, companies could be trusted to make sure that this is the case. This private oversight was what allowed scandals such as Enron and HealthSouth to manifest (Carvin, et. all, 2007). Therefore, the SOX rules allowed for the creation of a nongovernment oversight board, the Public Company Accounting Oversight Board, to be created to oversee and double check the preparation of these financial statements that are required under the Sarbanes-Oxley Act.
The creation of the Public Company Accounting Oversight Board, or PCAOB, has had many different effects on the preparation of company financial reports. When a company creates their annual financial reports, as required by SOX, the company must use a public accounting firm to audit those reports (Carvin, et. all, 2007). The public accounting firm that audits the company reports, checking for accuracy against other company records, is required to...
Mary Baker
Law 531
Alice L. King, J.D., M.B.A.
March 28, 2016
Analysis of Public Company Accounting Oversight Board
The Sarbanes-Oxley Act, commonly referred to as SOX, created a new set of standards to be used in ensuring the compliance of publicly traded companies in the area of financial statements and reporting. While the SOX rules were spurred onto the center stage by a string of financial reporting scandals that topped headlines for months and the companies involved became known as household names for the wrongdoing that even sent some top executives to prison, the rules have more purpose than simply preventing these scandals (Beasley, 1996). The idea behind the SOX accounting and reporting standards is to protect the public that invests in public companies from investing based on skewed financial data. The rules contained within the SOX are designed to make sure that financial statements actually reflect the true financial situation of the company that is reporting the data (Levitt, 1998). In a perfect world, companies could be trusted to make sure that this is the case. This private oversight was what allowed scandals such as Enron and HealthSouth to manifest (Carvin, et. all, 2007). Therefore, the SOX rules allowed for the creation of a nongovernment oversight board, the Public Company Accounting Oversight Board, to be created to oversee and double check the preparation of these financial statements that are required under the Sarbanes-Oxley Act.
The creation of the Public Company Accounting Oversight Board, or PCAOB, has had many different effects on the preparation of company financial reports. When a company creates their annual financial reports, as required by SOX, the company must use a public accounting firm to audit those reports (Carvin, et. all, 2007). The public accounting firm that audits the company reports, checking for accuracy against other company records, is required to...