Public Company Accounting Oversight Board

The audit of financial statements is mandatory for publically listed entities throughout the world. The auditor conducts various tests and based on the results forms an opinion on the truthfulness and fairness of the financial statements of the company and whether or not they are prepared in accordance with the financial reporting standards and are free from any material misstatement (Freedman, 2013). The purpose of auditing is to enhance the confidence of investors and to add credibility to the truthfulness of company 's true financial performance. However, there are some dos ' and don 'ts that an auditor must take care of. For instance, anything that threatens the independence of the auditor must be avoided as it adversely affects the truthfulness and objectivity of the opinion formed.

The mission of the PCAOB is to oversee audits of public corporations to protect the interests of the investor and ensure the audits are conducted

The PCAOB is responsible for providing independent oversight for public accounting firms. Auditors independence job is to limit conflict of interest and monitor the requirements of new auditor approvals. Corporate responsibility require that senior executives take sole responsibility for completeness and accuracy of all corporate financial reports. Last but not least, enhance financial disclosures assures the accuracy of financial reports and

Many causes were revealed by the aforementioned study, primarily, the failure to detect fraud could be due to the audit process. Hence, the methodology used in conducting audit missions have been rarely modified and upgraded

The PCAOB is the public accounting oversight board created by the Congress via the Sarbanes-Oxley Act. It appears the PCAOB has laid the groundwork to effectively monitor and review the public accounting

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

This paper contains the summary of the details and results of the audit tests on

The Sarbanes Oxley Act of 2002 enacted many new legislations including the creation of the Public Company Accounting Oversight Board, which inspects audits of public companies, increased regulations on auditor independence, prohibiting certain non-audit activities, increased corporate responsibility of company executives and management for financial reports, timely and accurate disclosure requirements, and management’s responsibility to design and test the effectiveness of internal controls. These legislations are just a few of the key sections of the Sarbanes Oxley Act among many others and have has a great impact on public auditors and the audit process of public companies. Although many of these new requirements and regulations require more detail, time, and money to implement, they help to protect the public interest of investors and restore the public’s trust in auditors and the financial reports of corporations and business that must follow the policies the forth in the Sarbanes Oxley Act.

The PCAOB gives a new meaning to the public accounting industry. The board must be composed of five members, appointed for a 5-year term, two of which are Certified Public Accountants (CPAs) or have previously been CPAs, and three of which have never been CPAs. The chair of the PCAOB may be a CPA, but only if he has been out of practice for at least five years. "The members must be independent of the accounting profession as no member may, concurrent with service on the board, share in any of the profits of, or receive payments from, a public accounting firm, other than fixed payment such as retirement payments" (4). All members of the PCAOB must be appointed by the Securities and Exchange Commission (SEC). The board performs various jobs which include: "oversee the audit of public companies, establish audit report standards and rules, inspect, investigate and enforce compliance on the part of registered public accounting firms and those associated with the firms" (4). Not only do public accounting firms who audit the financial reports of public companies have to register with the PCAOB, but foreign public accounting firms must register as well. The standards of auditing include:

But they have significant differences. First, the auditor provides reasonable assurance about whether the financial statements are free from material misstatement due to error or fraud in an audit report, but provides limited assurance about whether the financial statements are free from material modifications in a review report. A review engagement is substantially less intensive in scope than an audit, and just a few procedures are performed. (4) Second, review report is conducted according to the American Institute of Certified Public Accountants (AICPA), while audit report is conducted according to the Standards of PCAOB. Moreover, review service is less cost than audit

In the article written by Bruce Bettinghaus, the requirements of the new PCAOB standard (AS 7) demanding the review and approval of a second audit partner of each audit. The PCAOB tended to be tough. The conclusion was, “Unluckily, the additional loss of implementing it might larger than any

The American Association of Public Accountants, created in 1887, tasked accounting professionals with the responsibility to ascertain, maintain, and evaluate company financial statements for accuracy, fraud, and compliance utilizing current accounting guidelines. Financial frauds, in the twentieth century, however continued to evaded detection due to loose accounting oversight, and a lack of proper internal and external controls (Events that shaped a century, 2005).

Congress created the Public Company Accounting Oversight Board (PCAOB) or known as the Board, a nonprofit corporation in 2002 after Sarbanes- Oxley Act. The PCAOB purpose is to keep watch over audits of public companies in order to protect investors. Their responsibilities are broken into three main parts besides registering public accounting firms, the first one which is setting auditing standards by establishing what they need to do for audits, establishing quality controls, ethics, and independence. Second, Inspecting registered public accounting firms by conducting inspections and investigations of registered accounting firms and third is enforcement of the Sarbanes-Oxley.

The proceeds of the preliminary of SOX and also the increase essential of company governance within the many likenesses, there has been the formation of new restrictive agencies. Existing restrictive agencies were made two administer the audit of public firms. There 'll presumably be additional restrictive investigations by the SEC as a result. The SOX legislation has been designate two forestalled and establish several of the recent frauds operation organizations and their investors. As an issue, the audit profession can all over again gain numbers, but This point the role and methodology of the interior audit, perform can modify for satisfy necessities of the new legal mandates.

Audit cycle performance consists of several stages and the basic first stages are planning and preliminary survey in order to obtain general information on all areas and aspects of the audited company as well as the company 's activities and strategies that can be obtained in a short period of time. To accomplish these stages, some important points is needed including the understanding of the entity, identifying the key areas (key control), set the objectives and scope of the audit, determine the criteria of the audit, identify the audit evidence, prepare the preliminary survey, organize the preparation of the detailed test program, collect and test the audit evidence, and lastly generate the audit working papers.