The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board as a non-profit, non-government agency based in the District of Columbia.

All public accounting firms are required to register with the Board in order to continue operating and providing accounting services.

The Board is responsible for the establishment of quality controls in the auditing process—controls painfully absent in the scandals of Enron and WorldCom and the ensuing fraudulent accounting practices of Arthur Andersen.

The Board is given the authority to inspect public accountants and lead investigations of accounting firms subject to the Board's discretion. If a violation of any kind is discovered, the Board is given power to enforce its standards and issue sanctions to any offending parties.

Above all, the Board was created to promote and restore high standards in the accounting industry and ultimately protect shareholders and the general public interest again the greed and fraud seen in the corporate scandals of the early 2000s.

Public Company Accounting Oversight Board Members

The membership of the Public Company Accounting Oversight Board is set to five members, who, according to the Sarbanes-Oxley Act, must be "prominent individuals of integrity" who not only understand the intricacies of securities laws and the importance of forthright and honest financial disclosures but also have a committed interest in defending the public and shareholders from fraudulent accounting practices.

Only two of the members are allowed to have the designation of "Certified Public Accountant" and such members are not allowed to have practiced as an accountant for the past five years before assuming a position on the board.

A position on the Public Company Accounting Oversight Board is full time; board members are paid salary to ensure that all of their obligations and commitments to the board are a priority. The term for each board member is set at five years, with no member ever allowed to serve more than two terms on the board.

Board memberships expire in annuals increments so that no more than one board member is replaced each year. This process ensures that the leadership of the board cannot be radically changed in a short period of time.

Members of the board are responsible for establishing ethical standards for the Board and must submit an annual report to congress regarding its internal operations.

Accounting Firm Disclosure and Requirements

As part of their registration, all public accounting firms must provide a list of clients, fees paid from each client, complete financial disclosure, a statement of quality control, a list of accountants working for the firm, and all legal history made against or on behalf of the firm.

This information ensures that the Board will have a full and complete knowledge of the actions and peripheral history of each firm to aid in its monitoring and overseeing operations. Firms are required to submit an annual report to the Board regarding all activity of the firm , which is made available to the public— yet another means of requiring accountability.

Each firm must develop a set of internal quality control standards in an effort to prevent dishonest practices and to promote compliance with all securities laws and standards set forth by the Board. If such quality control standards are deemed to be insufficient, the Board may send in an external advisory group to assist and monitor the firm in its development of quality control standards.

Accounting firms who serve 100 or more issuers are subject to an annual inspection, while firms serving less than 100 issuers are subject to an inspection every three years. All reports generated during the course of an inspection are made available to the public.

Sarbanes-Oxley Investigations and Violations

The Board is given the right to conduct an investigation of any firm at its discretion and has authority to require the testimony of a firm, any accountant at the firm, and any client of the firm.

Board members are immune from any resulting civil action resulting from an investigation and have the authority to suspend the rights of accounting firms should they refuse to cooperate with the investigation.

Individuals face potential fines of up to $750,000 for each violation of accounting standards set forth by the Sarbanes-Oxley Act and could face permanent suspension of their license to practice accounting.

Title one concludes by stating that all foreign accounting firms auditing issuers in the United States are subject to the regulation of the Sarbanes-Oxley Act and then reviews the amendments made by the Sarbanes-Oxley Act to the Securities Act of 1933 and the Securities Exchange Act of 1934.

The Sarbanes-Oxley Series -- Learn More About Sarbox

The Sarbanes-Oxley Act: An Introduction
The Sarbanes-Oxley Act: Title I
The Sarbanes-Oxley Act: Title II
The Sarbanes-Oxley Act: Title III—Audit Committees
The Sarbanes-Oxley Act: Title III—Blackout Periods
The Sarbanes-Oxley Act: Title IV
The Sarbanes-Oxley Act: Title V
The Sarbanes-Oxley Act: Title VI
The Sarbanes-Oxley Act: Title VII—Accounting Firms
The Sarbanes-Oxley Act: Title VII— Past Violators
The Sarbanes-Oxley Act: Title VIII
The Sarbanes-Oxley Act: Title IX-XI