Public Company Accounting Oversight Board (PCAOB) - Will it Protect Investors?

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Public Company Accounting Oversight Board; Will it Protect Investors?

The Public Company Accounting Oversight Board (PCAOB) was created by Sarbanes-Oxley Act of 2002. This board was created to oversee the audit of public companies, subject to the securities laws, in order to protect the interests of investors (15 USC 7201, 2002). It was created in wake of the recent financial scandals of Enron, WorldCom, and Global Crossing to name a few. This “Act” established by Congress is to create an oversight board, so that such scandals will never occur again. Will this oversight board work and will its work restore public confidence and encourage individuals to invest in the stock market again? The PCAOB is not a tax-payer funded …show more content…

The PCAOB was not limited to simply reviewing public accounting firms, but also to create standards that public accounting firms must follow. The first standard requires public accounting firms registered with the PCAOB to include in their reports on engagements performed pursuant to the PCAOB’s auditing and related professional practice standards a reference to the standards of the PCAOB. The second standard requires public accounting firms to audit internal controls in conjunction with an audit of financial statements. The second standard requires public accounting firms to attest that the internal controls documented and set forth by the company audited are sufficient to ensure the integrity of the financial statements (Griggs). This second standard is a real breakthrough in ensuring the financial statements of a company are sound. It is impossible for a public accounting firm to audit every detail of large multi-national company. Strong internal controls reduce the risk of material misstatements to a company’s financials caused by negligence or fraud. Maintaining internal controls is no longer enough. Companies must now analyze and document their internal processes (Calabro). When a public accounting firm issues an unqualified opinion on the internal controls of a company, which will be required starting November 15, they are stating that the internal checks set forth adequately protect the assets of a company from negligence or fraud. There are

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