After a slew of highly publicized corporate accounting scandals during the early 2000s at prominent companies-including Enron, WorldCom, Adelphia, and Tyco-public confidence in the integrity of financial reporting by public companies was undoubtedly shaken. Several major financial reporting frauds demonstrated serious weaknesses with the then self-regulated accounting profession, including the failure of auditors to detect those companies that were "cooking their books." The collapse of several prominent companies not only affected top executives, who often were subjected to civil and criminal charges, but also produced harsh consequences for several other constituencies who relied on the integrity of the accounting firms to detect these discrepancies in financial reporting. As one scholar phrased it: "The growing number of accounting and corporate governance scandals had sounded an alarm, which was made all the more deafening by the staggering sums of money lost by shareholders, employees, and retirees of the companies involved." Reacting swiftly to the public concern, Congress passed landmark legislation in 2002. Congress designed the Sarbanes-Oxley Act ("SOX") to regulate the conduct of public accounting firms and to revive investors' confidence in the integrity of public companies' financial reporting and disclosures. After signing SOX into law, President George W. Bush declared that SOX included some of "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt."
SOX represented a radical departure from the previously self- regulated accounting profession. As a central part of SOX, Congress created the Public Company Accounting Oversight Board ("PCAOB") and provided it with extensive authority to ensure that SOX's lofty objectives were met. Among the PCAOB's significant powers and responsibilities is the authority to promulgate rules and regulations governing the standards and issuance of audit reports, to conduct inspections and investigations of registered public accounting firms, and to impose monetary sanctions on registered firms for noncompliance with its standards.
Michael A. Thomason, Jr.,
Auditing the PCAOB: A Test to the Accountability of the Uniquely Structured Regulator of Accountants,
62 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol62/iss6/7