Free Enterprise Fund Vs. Public Company Accounting Oversight Board

There were a lot of pointing fingers in the accounting scandals that plagued the economy in the 1990s within the companies involved. Congress decided to hold the CEO and CFO responsibility for any financial misreporting. This made the third most important causes of creating SOX.

Before the Free Enterprise Fund v. PCAOB ruling, there was a double for cause removal system. The PCAOB board members and SEC commissioners were only able to be removed from their positions if there was “for cause” rationale. This rationale stated that they could only be removed for inefficiency, neglect of duties or malfeasance in office. This allowed the PCAOB board members to be independent of the SEC. This independence and job security allowed them to regulate public accounting firms without fear of retaliation.

The Myers v. U.S. case challenges the President’s role and power of Chief Executive. This case questions that power because as Chief Executive the President has the job of appointing federal officials into office, however it is called into question on whether or not he can remove officials as well. The Supreme Court ruled in favor of the President claiming that he did not need Senate approval in order to dismiss Myers from his appointed office.

The Sarbanes - Oxley Act of 2002 is the most important piece of legislation since the 1933 and 34 securities exchange act, affecting everything from corporate governance to the accounting industry and much more. This law was in direct response to the failure of corporate governance at Enron, Tyco, and WorldCom. The Sarbanes - Oxley seeks to bring back the confidence in all publicly held corporations to the shareholders, while placing more responsibility on CEOs and CFOs for the actions of the corporation. "Sarbanes - Oxley is more than just another piece of legislation - it has become synonymous with a new culture of corporate accountability and reform1." The SOX, as it has come to be known, covers a myriad amount of corporate

In order to ensure effective regulation, the Sarbanes-Oxley legislation contains eleven sections that describe responsibilities of corporate boards (Engel, Hayes, & Wang, 2007). In case these responsibilities are not performed, criminal penalties are applied. The need for stricter financial governance laws created the global trend and such countries as Canada, Germany, France, Australia, Israel, Turkey and others also enacted the same type of regulations (Damianides, 2005). Today, the Sarbanes-Oxley legislation continues to play a fundamental role in the process of protecting the rights of investors and supporting a high level of investment attractiveness of the United States and companies that operate in the country. That is why this particular legislation can be considered as extremely benefiting for the national economy as well as investors.

ESSENCE OF THE STORY: The federal appeals-court recently made a ruling on PHH v. CFPB that would allow for Congress to take some of the Presidents power out of his/her scope. The court’s ruling has drawn criticism for numerous reasons but the original controversy stems back to 2008. In 2008 Congress established the Consumer Financial Protection Bureau which gave the agency the power to regulate consumer activity in the U.S.

The separation of powers was an issue that was picked at length. In their argument, when a congressionally created entity executes in mandate in its capacity to make rules adopted by the judiciary which does not cause interference with other prerogative branches, then it bears a congressional blessing hence no violations in the separation of powers (Carter, 2013).

Take the case of PHH Corporation. PHH appealed an unfavorable ruling by a CFPB administrative judge to the current CFPB Director, Richard Cordray . Not only did Cordray go beyond the administrative law judge’s decision to identify additional violations, but he also increased the PHH’s penalty from $6.4 million to $109 million simply for appealing the decision! The message is clear - companies cannot question the CFPB.

President. In reference to judicial checks, Martin Kelly makes the observation that courts may rule that a presidential action is unconstitutional “through the power of judicial review.”

The Sarbanes-Oxley Act law was passed in 2002, this law came in effect after numerous of accounting fraud cases in corporations. A few cases that have caused the Sarbanes-Oxley Act to pass were the waste management scandal in 1998. A Houston waste management company has reported false financial earning of over 1.7 billion dollars. The top executive chairmen and Arthur Andersen Company work together by falsely increasing the company’s property depreciation on the balance sheet. Once new management became a part of the company and viewed the books they notice the things the top executives were doing. The consequences resulted in settled a shareholder class action for $457 million and Arthur Andersen was fined by the SEC for $7 million dollars.

Continuing chapter five the first section covered is on the control the president holds over bureaucracy. This control is actually something that is mandated by the Constitution and covers three main source of power the president can exercise this control. These three powers are as follows: the appointment and removal of powers, the power to issue executive orders, and the role the president plays in the budgetary process. A final power that the president holds in this area is the ability to impound expenditures and funds appropriated by Congress. The next section that this half of the chapter covers is the judicial oversight that federal courts have over the administrative state. This section focuses first, on interpreting statutory authority;

With that said, that brings me to the next question. How does the decision, in this case, impact the validity of the Board and other provisions of the Sarbanes-Oxley Act? The decision gives zero validity as there still is not higher power overseeing the board members. The President can't remove board members at will, their powers unreasonable powers can't be lessened, and their enforcement

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

There are two types of accounting practices are public and private these two types are very distinct. I’m going to explain how these both practices work, the different jobs that both practices offer and finally the differences between the two. First I’m going to give the definition of both practices. Public Accounting is viewed as firms that serve clients such as businesses manufacturers, service companies, etc.), individuals, nonprofits and governments. Private Accounting refers to one person of a firm serves only one exclusive person, typically a corporation.

The executives are accountable to the board of directors. Instead of protecting the investors, the board enticed the culture of financial fraud in the company for selfish gains. It failed in its duties in keeping the executives in check.