The Public Company Accounting Oversight Board

Another outcome of the law is, Public Company Accounting Oversight Board (PCAOB), a public agency was created .This agency act as auditors of the public company .Their area of work is overseeing, regulating and inspecting accounting firms. The act also deals with issues such as auditor independence, internal control assessment, corporate governance and enhanced financial disclosure. The non-profit arm of Financial Executives International, Financial Executive Research Foundation completed a thorough research studies to help support in the foundation of the

In general, the main criticisms of the PCAOB are that it has not made sufficient it’s regulatory power, it is slow to act in its investigations of enforcement cases, and that it targets enforcement on smaller firms in order to protect the Big 4 firms, which are regarded as “too big to fail.” While I do not disagree with the fact that the PCAOB is slow and has not produced a significant amount of regulation, I do disagree with the criticism of the PCAOB as a regulatory body in general. I feel that certain members of the public desire absolute transparency in financial reporting, but do not understand the economy required to so. It is nearly impossible, not to mention impractical, to breakdown every aspect of a multi-billion dollar corporation to ensure that every transaction is accounted for

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

First, Congress saw the need to create an independent body to oversee the audit of public companies that are subject to the securities laws. PCAOB was established to protect the investors and further the public interest in the preparation of informative, accurate, and independent audit reports for public companies. Before the SOX, The

According to Terry Sheridan, in the article, SOX Compliance is Still a Challenge- and Costly- for Many Companies, she states that “Aside from external audit fees,

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

The PCAOB is charged with establishing and enforcing auditing, quality control, ethics and independence standards and rules for public company accountants. The SEC will not accept an audit report from an accounting firm that is not registered with the PCAOB. Thus, SEC reporting companies must engage the services of a registered public accounting firm. The PCAOB is funded by new fees imposed on publicly-traded companies based on their market capitalization – the fees range from as little as $100 for the very smallest companies to more than $1 million for a handful of the largest companies.[4]

The act is also referred to as Sarbox or SOX. The Securities and Exchange Commission (SEC) is responsible for enforcement of the law. The Public Company Accounting Oversight Board (PCAOB) was created as a new auditor through SOX. Standards were stipulated for audit reports.

When the new revised exposure draft came out for ISA 610, the result was to bring the standard up to reflect the current organizational structures of companies. With the new revision of the standard there was a lot more detail added to most of the paragraphs and included examples for some of the subsections to provide more guidance to the auditors. There were subsections of the standards where just one word was changed but the one word change makes the difference from a suggestion to a requirement which could result in more work needed to be done by the external auditor to make sure that they are in compliance with the standard. When additional work is required it has a direct cost associated with it but it can also have indirect cost or benefits as well. An example of this is when the new standard changed the wording from “should” to “must”, this results in more work for the external auditor to make sure that they document that they followed that specific guideline which is a direct cost. But the indirect cost or benefit can be that the auditor had done this work before and now they have to document their work to show proof or if it wasn’t done before it could have an indirect benefit as it can provide more documented proof of how they reached their decision on the overall audit.

Title I of the SOX comprises the creation of the Public Accounting Oversight Board (PCAOB) (Sarbanes-Oxley Act, 2002). The PCAOB is a private-sector, nonprofit corporation which oversees the auditors of public companies. It is to protect the interests of the investors and to further the public interest when preparing informative, fair, and independent audit reports. The title consists of 9 subsections. Section 101 describes the establishment of PCAOB, which consists of 5 full time members, 2 of which are CPAs, all selected by the SEC (Philipp, CPA, & CGMA, 2014). Section 102 states that public accounting firms are required to register with the PCAOB in order to issue or prepare in the issuance of an audit report to an issuer (Philipp, CPA,

The Sarbanes-Oxley Act has many provisions. A few of the major provisions include the creation of the Public Company Oversight Board (PCAOB), Section 201, 203, 204, 302, 404, 809, 902, and 906. The PCAOB was the first true oversight of the accounting industry. It oversees and creates regulations, and it will monitor and investigate audits and auditors of public companies. The PCAOB has the authority to sanction firms and individuals for violations of laws, regulations, and rules. Section 302 requires the CEO and CFO to certify that they reviewed the financial statements, and that they are presented fairly. Section 404 requires management to state whether internal control procedures are adequate and effective, and requires an auditor to attest to the accuracy of the statement. Section 902 states that “It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object’s integrity or availability for use in an official

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.

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:

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

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.