The Securities and Exchange Commission

Introduction

The Securities and Exchange Commission is an American-based organisation that is responsible for monitoring securities markets and assuring investors. In September, 24, 2021, Stephan Toth and Thomas Powell entities, Homebound Resources LLC and Resolute Capital Partners were accused of alleged misinterpretation and omission of materials with several unregistered oil and gas companies. Toth and Powell were also accused of being unregistered broking.

GAAS (Generally Accepted Auditing Standards) are a set of standardized rules used by auditors while requires auditors on accounting transactions of businesses. GAAS ensures that auditors’ activities and reports are accurate, consistent, and verifiable. GAAS was developed by american Institute of Accountants (AICPAAuditing )’s Standards Board (ASB).

The auditing standards known as GAAS are used to examine the effectiveness of audits. Auditors examine and report on a company’s financial records using commonly accepted reporting standards.

Auditors are in charge of setting whether public firms’ financial accounts adhere to widely financial accounting standards (GAAP). GAAP (Generally Accepted Accounting Principles) is a collection of accounting principles that corporations must adhere to when presenting their income reports. Auditors examine an annual financial performance and bookkeeping practices to ensure that they are accurate and in accordance with GAAP. The Securities and Exchange Commission (SEC) mandates that public firms’ accounting records be audited by external, independent auditors.

The order by SEC from 2016 to 2019, finds the salespeople and respondents guilty of selling equity and debt securities to unsuspecting investors in offerings that were unregistered based on the interests in oil firms, (Zetsche, et al., 2018). The order finds the respondents responsible for; providing non existing future projects of gas production, making statements on tax gains which were not available to other investors and, sketchy disclosures of how the investors funds will be used.

Lenders, financiers, tax officials, prospective shareowners, and others rely on the auditor’s audited accounts and enter in to the exchanges with the corporation without further investigation.

Negligence Liability: The court ruled that the auditor is not subject to liability since there is no agreement here between auditor and the third parties. He has no obligation to them, (Zetsche, et Al., 2018).

Liability for Fraudulent Acts: Even when there is no valid contract between the auditor and the third parties, third parties can retain the auditor responsible if there is deceit on the part of the auditor. In some cases, an auditor’s misconduct may amount to embezzlement, for which he may be found accountable to third parties. However, it must be demonstrated.

The auditor is responsible for planning and conducting the audit in order to acquire evidence that financial reports are free of serious misstatement, whether due to human error or fraud. The auditor can acquire substantial, but not absolute, certainty that major misstatements are recognized because of the structure of audit proof and the features of fraud. The auditor has no responsibility to organize and conduct the audit in such a way that reasonable assurance is obtained that non-material financial statement misstatements, whether generated by faults or deception, are recognized.

The accounting information is the management’s responsibility. The auditor’s role is to provide an opinion on financial statements. Management is responsible for setting up control activities that will, among several other things, activate, document, process, and review money transfers (as well as occurrences) that are coherent with company’s presumptions encapsulated in the financial statements. Management has direct knowledge and control over the entity’s transactions as well as the related assets, liabilities, and equity. The auditor’s expertise of these issues and internal controls is limited to what he or she learned during the audit. As a result, management’s responsibility includes the fair quality of financial reporting in compliance with generally accepted accounting fundamental . An individual auditor may make suggestions.

The Sarbanes-Oxley Act of 2002 requires publicly traded companies subject to the laws of the United States Securities and Exchange Commission to comply with corporate governance disclosure laws. Section 404 of Sarbanes-Oxley requires all public companies to assign an external auditor to conduct a comprehensive evaluation of the effectiveness of all internal controls that impact financial statements, including all substance business operations and regulatory requirements, (Williams, 1998).

The PCAOB is responsible for enforcing standards of practice as well as other relevant laws and policies governing public company accounting oversight board and broker-dealers. PCAOB staff explores potential violations of these specifications, laws, and regulations by public accountants and individual citizens. According to the PCAOB Master plan, the Board takes precedence enforcement initiatives to solve issues that pose a high risk to shareholders and are most effective in deterring improper behaviour. The PCAOB staff places a strong emphasis on significant audit infractions, failures related to independence of auditors, and issues that threaten the Board’s supervisory, (Carmichael, 2004). When violations are discovered, the PCAOB may levy sanctions such as censure, monetary penalties, and restrictions on a firm’s or a people’s capacity to audit publicly traded companies or financial adviser. PCAOB inquests and disciplinary hearings are private and highly confidential, as considered necessary by the Sarbanes-Oxley Act.

References

Williams, C. A. (1998). The securities and exchange commission and corporate social transparency. Harv. L. Rev., 112, 1197.

Carmichael, D. R. (2004). The PCAOB and the social responsibility of the independent auditor. Accounting Horizons, 18(2), 127.

Zetzsche, D. A., Buckley, R. P., & Arner, D. W. (2018). The distributed liability of distributed ledgers: Legal risks of blockchain. U. Ill. L. Rev., 1361.