The first order of business for the Sarbanes-Oxley Act was to establish the Public Company Accounting Oversight Board - PCAOB. The PCAOB, more commonly referred to as "the Board", was created to oversee the audit of public
companies, establish audit report standards and rules, and inspect, investigate and enforce compliance on the part of registered public accounting firms and those associated with the firms. Twenty-two pages of the sixty-eight page Act are devoted to the creation of this board and explaining in painful detail how it works.
In February of 2005, two and a half years after the Board's inception, Peter J. Wallison wrote an essay titled Reign in the Public Company Accounting Oversight Board. According to Wallison, Congress handed the SEC free reign and an unlimited budget by way of an organization that doesn't have the usual checks and balances that hold government agencies accountable. In this work, Wallison calls for Congress to put an end to the Board before it gets out of control.
What did the SOX Act set up? In reaction to the "accountants gone wild" scandals relating to Enron, WorldCom, and Tyco, Congress created an organization that has no limits to its budget, authority, and regulatory reach. Talk about having the government's fingers in the business pie!
The PCAOB is a Washington D.C. not-for-profit corporation rather than a government agency. Because of this, it does not present its budget before an appropriations committee for funding. There is not the usual accountability to the man with the check book. Normally a self-regulating organization is funded by the industry it is set up to serve; in this case, the accounting industry. Congress set this one up so that it is funded by charging fees to all public companies. There are about 8,400 of them, making this is effectively a tax on the entire economy. With this funding method, if the Board needs more money, it only has to raise its fees. The businesses that are footing the bill have no choice in the matter; if they want to be publicly traded, they have to pay the fee.
Who is in charge of the Board? Who is regulating the regulators? Our government is set up with a system of checks and balances with Congress controlling the funding. If an agency is overstepping its bounds, tightening the financial belt tends to be an effective control. But the PCAOB isn't a government agency. Technically, its budget is evaluated by the SEC. The SEC also has the right to install and remove board members. On the surface that arrangement implies that the SEC is regulating the Board. The fine print of the SOX Act directs the Board to establish, inspect, investigate, enforce, and anything else the SEC assigns it to do. Why would the SEC reduce funding for the PCAOB? The SEC, who has to go before the Appropriations Committee for funding, limit the resources for an organization that can take on some of the pet projects its own budget can't afford? The industry it serves has no leverage because it has no control over the fees it pays and the SEC has no motive to limit those fees so there is no controlling financial belt.
With an unlimited budget and the authority to investigate, discipline, and penalize, what happens when the regulators go wild?
companies, establish audit report standards and rules, and inspect, investigate and enforce compliance on the part of registered public accounting firms and those associated with the firms. Twenty-two pages of the sixty-eight page Act are devoted to the creation of this board and explaining in painful detail how it works.
In February of 2005, two and a half years after the Board's inception, Peter J. Wallison wrote an essay titled Reign in the Public Company Accounting Oversight Board. According to Wallison, Congress handed the SEC free reign and an unlimited budget by way of an organization that doesn't have the usual checks and balances that hold government agencies accountable. In this work, Wallison calls for Congress to put an end to the Board before it gets out of control.
What did the SOX Act set up? In reaction to the "accountants gone wild" scandals relating to Enron, WorldCom, and Tyco, Congress created an organization that has no limits to its budget, authority, and regulatory reach. Talk about having the government's fingers in the business pie!
The PCAOB is a Washington D.C. not-for-profit corporation rather than a government agency. Because of this, it does not present its budget before an appropriations committee for funding. There is not the usual accountability to the man with the check book. Normally a self-regulating organization is funded by the industry it is set up to serve; in this case, the accounting industry. Congress set this one up so that it is funded by charging fees to all public companies. There are about 8,400 of them, making this is effectively a tax on the entire economy. With this funding method, if the Board needs more money, it only has to raise its fees. The businesses that are footing the bill have no choice in the matter; if they want to be publicly traded, they have to pay the fee.
Who is in charge of the Board? Who is regulating the regulators? Our government is set up with a system of checks and balances with Congress controlling the funding. If an agency is overstepping its bounds, tightening the financial belt tends to be an effective control. But the PCAOB isn't a government agency. Technically, its budget is evaluated by the SEC. The SEC also has the right to install and remove board members. On the surface that arrangement implies that the SEC is regulating the Board. The fine print of the SOX Act directs the Board to establish, inspect, investigate, enforce, and anything else the SEC assigns it to do. Why would the SEC reduce funding for the PCAOB? The SEC, who has to go before the Appropriations Committee for funding, limit the resources for an organization that can take on some of the pet projects its own budget can't afford? The industry it serves has no leverage because it has no control over the fees it pays and the SEC has no motive to limit those fees so there is no controlling financial belt.
With an unlimited budget and the authority to investigate, discipline, and penalize, what happens when the regulators go wild?
| pcaob_february2005.pdf |
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