Results matching “pcaob”

Last week, the Public Company Accounting Oversight Board released its staff guidance on economic analysis in PCAOB standard setting. According to PCAOB Chairman James Doty, "[t]he Guidance should give those who are interested in the PCAOB's standard setting a better understanding of the analysis that staff plan to conduct to ensure effective and efficient rulemaking." The PCAOB guidance is an important departure from the historical reluctance of federal financial regulators to conduct economic analysis in connection with their rulemaking. In response to this aversion to pre-regulatory analysis, Abby McCloskey and I released a paper this week exploring the merits of a statutory requirement applicable to all the federal financial regulators.

Rather than something to be feared, economic analysis helps a regulator identify the problem it is trying to solve and think through potential solutions. Yes, it is a difficult, time-consuming, and costly exercise. It is true that there are hard to quantify benefits and costs, uncertainties, data gaps, and indirect effects. Despite these problems, most regulators are required by executive order to conduct economic analysis. Given the far-reaching effects that federal financial regulations have, the benefits of ascertaining what your rule will do before you adopt it outweigh the costs of doing a reasonable analysis. The PCAOB guidance embraces a form of analysis similar to that required under the executive orders. The other federal financial regulators should do the same. A clear, statutory requirement applicable to all of the financial regulators would ensure that thinking about whether and how regulations will work and what their likely consequences will be is not optional.

Is the PCAOB Turning Back Towards AS2? - PointOfLaw Forum

One of the most controversial parts of the Sarbanes-Oxley Act was section 404(b), which required audits of internal controls over financial reporting. The 404 audits were conducted pursuant to the Public Company Accounting Oversight Board's Auditing Standard No. 2. Guided by this standard, auditors began a lucrative practice of auditing companies' internal controls with a bottom-up, check-the-box approach. Companies objected that the approach cost far more than regulators had anticipated--enough to make some public companies rethink their decision to go public. In 2007, a reluctant PCAOB issued Auditing Standard No. 5 to replace the earlier standard. Its approach allowed auditors to use their judgment to focus on critical areas, rather than requiring them to conduct procedures just to say that they had. Yesterday, the PCAOB staff issued a lengthy practice alert directing auditors to be more thorough. The alert's issuance was prompted by the problems that the PCAOB has identified in its inspections of internal control audits. The length and relative inflexibility of the guidance suggest that companies may want to brace themselves for another upsurge in audit costs as auditors seek to prove themselves to the PCAOB.

Supreme Court roundup, July 2 - PointOfLaw Forum

The end of the term produced fireworks and fizzles.

"Prognosticating Free Enterprise v. PCAOB" - PointOfLaw Forum

Tom Goldstein and Stephen Bainbridge have some thoughts about this morning's upcoming announcement of the decision of the critical case on Sarbanes-Oxley's constitutionality.

Around the web, January 13 - PointOfLaw Forum

  • Feres, military contractors and battlefield liability: why not contractual waivers? [Stier, Mass Tort Lit]
  • "Blockbuster Punitive Damage Awards: California Leads The Way!" [Nye, Cal Biz Lit on Del Rossi/Viscusi SSRN paper, "The Changing Landscape of Blockbuster Punitive Damages Awards"; more on California damage awards from CJAC]
  • Off-label drug promotion: "High court urged to hear False Claims Act case" [LNL]
  • When contingent fee clients want to switch lawyers, don't play games with their files [Kennerly]
  • More on PCAOB separation of powers case [Hans Bader, Examiner, via Bainbridge]
  • Sorry, but implanted medical devices are neither immortal nor indestructible [Beck]

Around the web, December 21 - PointOfLaw Forum

Bloggers on PCAOB - PointOfLaw Forum

Jonathan Adler rounds up some links on the Supreme Court case raising a challenge to Sarbanes-Oxley and independent agency power (earlier).

Sarbanes-Oxley before the Supreme Court - PointOfLaw Forum

Today the U.S. Supreme Court takes up the constitutionality of the Public Company Accounting Oversight Board (PCAOB). Larry Ribstein: "I've been watching the SOX debacle play out for seven years. It will be interesting to see how this ends." More: Hans Bader, Examiner and earlier; WSJ Law Blog; our earlier coverage.

Separation of powers before the Supreme Court - PointOfLaw Forum

A Vanderbilt roundtable on the pending Free Enterprise Fund v. PCAOB case includes such notable commentators as Steven Calabresi and Gary Lawson [En Banc via Adler/Volokh]

Structural and separation-of-powers issues concerning the "unitary Executive" are the main topic of concern, but the question of whether Sarbanes-Oxley is itself a necessary or valuable bit of market intervention might enter into some Justices' thinking at least at the margins. [Bainbridge]

Yesterday, the DC Circuit heard arguments appealing the dismissal of a challenge to the constitutionality of the Public Company Accounting Oversight Board (Feb. 2006), an institution whose members are appointed by the SEC, which would seem to violate the Appointments Clause. (The lawsuit also alleges nondelegation doctrine problems.) A panel of Judges Brett Kavanaugh, Judith Rogers, and Janice Rogers Brown expressed substantial skepticism to the PCAOB's position, as Michael Carvin argued that the board was a permanent government-like agency with extraordinarily broad and unchecked prosecutorial powers, but outside the power of the president to appoint or remove officials. (Judith Burns, "Accounting Oversight Board Case Heard By Appellate Court", Dow Jones Newswires, Apr. 15; Jurist summary; CEI press release). Because of a nonseverability provision in Sarbanes-Oxley, a finding that PCAOB is unconstitutional would strike down the law entirely, but the argument was not reported on by any newspaper—not even the Wall Street Journal.

SOx and audit certification - PointOfLaw Forum

AEI's Peter Wallison:

Although the public, the media, and even lawmakers seem to think that financial statements accurately record what happened in the past, financial statements prepared under Generally Accepted Accounting Principles (GAAP) are largely shaped by management estimates and forecasts about an unknowable future. Although the use of apparently unambiguous numbers gives the impression of precision, it is an illusion. This places auditors in an impossible position. They are unequipped to assess the accuracy of management estimates and forecasts, yet their standard opinion concerning financial statements suggests that they have. The Public Company Accounting Oversight Board (PCAOB) has the authority to change the format of the auditor's attestation, and thus to relieve auditors of liabilities they do not deserve and cannot avoid. PCAOB action could go a long way toward reducing the liabilities of the major auditing firms--one of the key dangers to the global financial system recognized in all the recent reports on the regulation of U.S. capital markets.

A SOX amputation won't work - PointOfLaw Forum

Bob Greifeld, head of Nasdaq and self-styled "consistent supporter of the principles of Sarbanes-Oxley," now sees that something must be done about it. Writing in today's WSJ, he's worried that the burdens imposed by SOX are forcing foreign companies to leave US capital markets. His solution is to support the recommendations of the SEC's Advisory Committee on Smaller Public Companies to exempt small public firms from 404.

As I write here, this attempt at cure by amputation won't work. Congress needs to revisit, and possibly repeal, the Act. Possible spurs to action include the suit over the Constitutionality of the PCAOB and the groundswell to exempt small firms -- which the SEC may not be authorized to do.

More on this Monday at the AEI.

Is the PCAOB constitutional? A Competitive Enterprise Institute paper by Hans Bader and John Berlau argues that this institution, established by Sarbanes-Oxley, and whose members are appointed by the SEC, violates the Appointments Clause. Donna Nagy identifies similar problems in the Notre Dame Law Review. And now the Free Enterprise Fund of the Competitive Enterprise Institute has filed a lawsuit, on behalf of an accounting firm aggrieved by PCAOB's onerous reporting requirements, arguing just that, with legal superstars Kenneth Starr, Michael Carvin, and Viet Dinh on the briefs. But because Sarbanes-Oxley has no severability provision, if the PCAOB is found unconstitutional, the whole law falls. (Kara Scannell and Brody Mullins, "Suit Seeks to Overturn Sarbanes-Oxley Law", Wall Street Journal, Feb. 8; Wall Street Journal op-ed, Feb. 8; Amy Borrus, "Who Watches Accounting's Watchdog?", Business Week, Feb. 8; complaint). Congress rejected these arguments when it drafted the law due to an analysis by Harvard Professor Elena Kagan, which does not appear to be on the web. Larry Ribstein comments, and Hans Bader himself debates the issue in the comments to this Volokh post.