Expectations Of The Pcaob New Rule

In order “to offer high-quality accounting services”, Arthur Andersen (AA), a Northwestern accounting professor started a business to offer services to clients promoting “integrity and sound audit opinions over higher short-run profits”. The company’s “four cornerstones” was good service, quality audits, well-managed staff, and profits for the firm. Their strategy was to focus on quality and high standards of audits rather than profits, a very successful strategy that led to consistent growth over the years.

5. The audit client should be allowed to "follow" its engagement audit partner to another accounting firm because it obviously breach the independence of the auditor after forging a relationship with the clients. SOX specified the "cooling-off" period for the auditor from entering the client management, this serves the same purpose as well.

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

If the accounts and projections are not updated, then the financial statements will mislead the auditors, bank officials and the users of the financial information in their judgment of the company’s financial health. This practice is dishonest and contradicts the integrity principle per the Code of Conduct. The objectivity principle states that the professionals should not be prejudiced and should be free of conflicts of interest in discharging their duties diligently. The question here is whether there is any basis on which Bill and Dan may not make disclosures to the external auditors or anyone else. What can be the best procedure to comply with the relevant laws and regulations so as not to discredit the profession and the company? These dilemmas can be solved by involving the Directors and the audit

Section 105 gives PCAOB authority to conduct investigations and obtain all relevant information. PCAOB also has the power to suspend auditors, revoke the registration of the accounting firms and impose penalties for violations or unwilling to corporate with an investigation (Philipp, CPA, & CGMA, 2014). Section 106 regulates foreign public accounting firms providing an audit report to an issuer and requires them to comply with PCAOB requests (Philipp, CPA, & CGMA, 2014). Section 107 gives SEC oversight and enforcement authority over the PCAOB and its decisions (Philipp, CPA, & CGMA, 2014). This prevents PCAOB from gaining too much power over accounting regulation. Section 108 amends the Securities Act of 1933 to allow the SEC to have the authority to establish accounting standards, to adopt accounting standards established by a standard setting body that meets certain qualifications, such as the FASB. Section 109 calls for funding of the PCAOB and the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies (Philipp, CPA, & CGMA,

WUCHUN CHI, National Chengchi University HUICHI HUANG, Syracuse University YICHUN LIAO, National Taiwan University HONG XIE, University of Kentucky 1. Introduction Mandatory audit partner rotation has existed in the United States since the 1970s, when the American Institute of Certified Public Accountants (AICPA) required that audit partners in charge of Securities and Exchange Commission (SEC) audits be rotated at least once every seven years. The Sarbanes-Oxley Act of 2002 (SOX) further strengthens this requirement by mandating a five-year rotation for the lead and concurring partners. An implicit assumption in a policy of mandatory partner

Auditors should insist that engagement letters identify third parties, so that if there is an issue of fraud they know who they are liable for. It is important that they are familiar with the third party companies, because they are essentially representing them and supporting their investments with their audit report.

This is an opinion on rules 3210 and 3211, regarding the new disclosure requirements, the Public Company Accounting Oversight Board (PCAOB) placed on accounting firms who perform audits on public companies. The new rules require the disclosure of engagement partner names and certain other participants performing public company audits. The requirements help provide financial statement users more transparent information on who performed the audit work and a percentage of the overall audit.

Carcello, Hollingsworth and Mastrolia tested whether PCAOB annual inspections result in higher quality financial reporting (Carcello, Mastrolia, & Hollingsworth, 2011). They compare abnormal accruals reported by audit clients before and after initial inspections by PCAOB (Carcello, Mastrolia, & Hollingsworth, 2011). If the inspections result in improved auditing, they expect to see less earnings management after the initial inspection (Carcello, Mastrolia, & Hollingsworth, 2011). For comparison purposes, they make the same observations before and after AICPA peer review inspections made prior to SOX (Carcello, Mastrolia, & Hollingsworth, 2011). They find a significant decrease in income-increasing abnormal accruals in the first and second years

Furthermore, the proposed ASU will impact all companies that report their financial statements under US GAAP. Some of the disclosure requirements are already part of the current Securities and Exchange Commission (SEC) disclosure requirements, but some disclosure requirements will reveal new information about reporting entities. PricewaterhouseCoopers (PwC) (Spang and Suplee, 2016) warns that “companies should consider how the additional disclosures may be utilized and interpreted by various stakeholders. In addition, compiling the necessary information, particularly for multinational corporations, may be challenging and may require updates to systems, processes, and controls”. Therefore, the implementation of the new standards on the early stages may require additional financial resources from the business entities.

To start, the agency assigned to oversee the implementation of the Sarbanes-Oxley Act is the Securities and Exchanged Commission (SEC). It created the Public Company Accounting Oversight Board (PCAOB) to monitor and evaluate auditing reports from accounting firms to ensure the quality of financial statements and that full corporate governance is being carried out. It sets a standard that all firms must follow closely. PCAOB is an independent organization whose primary role is to catch and recognize any suspicious and unethical activities in accounting firms and oversee that firms are following the compliances rules of SOX. A typical auditing report created by PCAOB is divided into two parts. According the Nagy (2014), the first part consists of a list of any flaws in compliance and auditing errors and the second part is quality control. The purpose of creating PCAOB is to promise investors and the general public that firms are following the strict compliance policy of SOX and that the SEC is aware of the financial situation of companies because it is keeping a close eye on monitoring business

A seven-year retention period for audits work papers, second partner review and approval, evaluation of whether internal control structure and procedures include records that accurately reflect transactions and dispositions of

The Public Company Accounting Oversight Board, or PCAOB, is a nonprofit organization established by the government to oversee audits of public companies. The organization also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal security laws (Public Company Accounting Oversight Board, n.d.). The PCAOB was created by the Sarbanes-Oxley Act of 2002, also known as SOX, to protect investors and the public interests by promoting accurate audits through independent auditors (Public Company Accounting Oversight Board, n.d.). SOX was established by the government after many companies were caught committing fraudulent activity including Enron and WorldCom. PCAOB is just one part of the Sarbanes-Oxley Act hoping to deter fraud and protect investors and the economy.

In addition, an accountant is not independent of an audit client if an audit partner received compensation based on selling engagements to that client for services other than audit, review and attest services. Companies are required to disclose in their proxy statement or annual filings with the SEC the total amount of audit and nonaudit fees paid to the audit firm for the two most recent years. Four categories of fees are to be reported: (1) audit fees; (2) audit-related fees; (3) tax fees; and (4) all other fees. Companies are also required to provide further breakdown of the “other fees” category, and provide qualitative information on the nature of the services provided. 4-8 The rules concerning stock ownership by partners and professional staff: A partner in the office of the partner responsible for an audit engagement cannot own stock in that audit client. A partner can own stock in an audit client, as long as (1) he or she cannot influence the audit engagement and (2) he or she is not in the same office as the partner responsible for the audit engagement. A professional staff member cannot own stock in an audit client if he or she is assigned to the engagement or if he or she becomes a partner in the office of the partner responsible for the audit engagement. A professional staff member can own stock in a firm’s audit client as long as he or she does

These changes were outlined in the Sarbanes Oxley Act of 2002 (SOX). SOX completely revolutionized financial reporting, requiring senior management of firms to sign off on each financial statement that the company issues. It also stipulated that wrongful doing can result in not only termination but also imprisonment. SOX amplified the requirement for companies, requiring firms to maintain proper levels of internal controls when it comes to operating activities. SOX also established the creation of the Public Company Accounting Oversight Board (PCAOB) which implemented stricter auditing standards for public accounting firms. Not only were accounting firms required to consider internal controls, but they were also required report any significant deficiency directly to the board of directors. SOX stressed the importance of internal controls, and within internal controls it established the need for segregation of duties. Since this time, there have been many additions to accounting policies regards segregations of duties, and many functions of the business process dedicated to it.