I am encouraged, as I mentioned a moment ago, that in recent years we have seen a number of countries undertake similar efforts to enhance auditor oversight. While auditor oversight bodies around the world may be taking a variety of approaches in implementing auditor oversight models, we all share the objective of improving public confidence in the credibility of audits of financial statements. If closely coordinated, this will help to limit regulatory arbitrage and promote a global confidence in financial reporting, and more specifically audited financial statements. As I mentioned, the PCAOB faces an interesting challenge with respect to the inspection of registered firms located outside of the United States. It requires all auditors of public companies to register with them.
We are now starting to evaluate the extent to which investors are recognizing improvement in the reliability of financial reporting by U.S. public companies. That is, today we are in a better position to reflect on the impact of the Act and whether we are on the right track in achieving its objectives. I believe we have seen a restoration of investor confidence in financial reporting.
Further, I only had to get to the second paragraph of the introductory letter from Roger LeMaster and Douglas Bates before the Sarbanes-Oxley Act was mentioned. At that point I had a clear sense of how I could contribute to your deliberation at this conference. My themes today will include the evolution of regulatory entities such as the Public Company Accounting Oversight Board (PCAOB), multi-jurisdictional challenges for entities such as ours, and the growing importance of cross-border coordination. Hopefully, our experience can contribute to your understanding of these important issues.
This includes reviewing and approving the PCAOB’s budget and accounting support fee annually. The largest source of funding for the PCAOB comes from the companies whose financial statements must be audited by PCAOB-registered firms. The PCAOB is an acronym for the Public Company Accounting Oversight Board. The PCAOB is a regulatory board that oversees the audits of public companies. Financial disclosure played a fundamental role in the creation of the PCAOB.
What is the role of the Pcaob?
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and
The PCAOB inspects, investigates, and enforces the compliance of these firms. It prohibits accounting firms from doing business consulting with the companies they are auditing.
Public Company Accounting Oversight Board (PCAOB)
These areas include internal control over financial reporting, assessing and responding to risks of material misstatement, and accounting estimates. Part II of the Public Company Accounting Oversight Board (PCAOB) inspection report is released only when firms fail to remediate quality control criticisms and is intended to be a public signal of audit quality.
But the lead audit partners must rotate off the account after five years. The PCAOB periodically issues Inspection Reports of registered public accounting firms. Those portions are made public (called “Part II”), however, if the Board determines that a firm’s efforts to address the criticisms or potential defects were not satisfactory, or the firm makes no submission evidencing any such efforts.
Registered firms that issue audit reports for 100 or fewer issuers are generally inspected at least once every three years. In addition, the PCAOB annually inspects at least 5 percent of all registered firms that play a substantial role in the audit of an issuer but that do not issue audit reports for issuers themselves.
It created the Public Company Accounting Oversight Board to oversee the accounting industry. It banned company loans to executives and gave job protection to whistleblowers. The Act strengthens the independence and financial literacy of corporate boards.
I appreciate the opportunity this morning to participate in your discussion of global risk and regulation. When I received the invitation to speak here today, I initially wondered what perspective I could offer a group of tax experts that would be of value. The literature describing the intent of this conference provided the answer. Your focus during these two days will include analysis of the impact of regulatory and control regimes, financial disclosures and multi-jurisdictional oversight.
PCAOB inspections are risk-based and designed to identify auditing problems at an early stage and focus firms on correcting them. This approach is designed to provide a constructive exchange between firms and the PCAOB, and we have observed that concerns identified during inspections are often promptly addressed by the firm being inspected.
What internal auditors do – and how much they make
- The Public Company Accounting Oversight Board (PCAOB) was established with the passage of the Sarbanes-Oxley Act of 2002.
- The act was passed in response to various accounting scandals of the late 1990s.
The PCAOB performs inspections to evaluate firms’ compliance with the standards mentioned earlier. The PCAOB’s inspections focus on firms that audit 100 or more public companies each year. The PCAOB inspects firms that audit fewer than 100 public companies at least once every three years. The PCAOB stated that the inspections will focus on areas of considered higher risk.
As I just mentioned, the Sarbanes-Oxley Act established the PCAOB as the independent auditor oversight body in the United States. The PCAOB’s mission is to oversee the auditors of public companies, protect the interests of investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.
In addition, as also provided for in the Act and the Board’s rules, a number of other non-U.S. firms are registered because they audit or wish to audit significant non-U.S. With respect to both categories of firms, the PCAOB continues to work closely with its foreign counterparts to minimize unnecessary overlap and achieve our shared objectives in the oversight of these non-US firms. To give you context, I should give those of you who may not have dealt with the PCAOB before a brief synopsis of our mandate.
PCAOB is overseen by the Securities and Exchange Commission and, since 2010, the PCAOB has overseen the audits of SEC-registered brokers and dealers. The PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.
In 2011, the Board adopted an interim inspection program for the audits of broker-dealers, while the Board considers the scope and other elements of a permanent inspection program. The American Institute of Certified Public Accountants (AICPA) issues Statements on Auditing Standards with the AU prefix that can be found here. The Public Company Accounting Oversight Board (PCAOB) issues General Auditing Standards with the AS prefix that can be found here. Audits of companies that are SEC registrants use both standards.
The PCAOB does this through its standards setting, inspections, enforcement, and outreach programs. Registered accounting firms that issue audit reports for more than 100 issuers (primarily public companies) are required to be inspected annually.
Section 404 of the Sarbanes-Oxley Act requires public companies’ annual reports to include the company’s own assessment of internal control over financial reporting, and an auditor’s attestation. Since the law was enacted, however, both requirements have been postponed for smaller public companies. The requirement of an auditor’s attestation won’t apply to most smaller public companies until their 2008 annual reports. The 2007 annual report will be the first year that the management assessment will need to be included. The PCAOB regularly inspects those firms that issue audit reports opining on the financial statements of issuers.
The purpose of this paper is to reexamine whether audit clients react to the release of Part II of the PCAOB inspection report as a signal of audit quality. When violations are found, the PCAOB can impose appropriate sanctions. To illustrate the importance of regulatory coordination to the PCAOB, more than 750 of the over 1750 firms registered with the PCAOB are in countries outside the United States, although they may be affiliated with large, U.S. based audit firms. As required by the Sarbanes-Oxley Act, many of these firms are registered with the PCAOB because they audit non-U.S. companies whose securities trade in U.S. markets and are required to file audited financial statements with the SEC.
It holds CEOs personally responsible for errors in accounting audits. The PCAOB oversees the audits and auditors of the financial statements that are filed by issuers and registered broker-dealers. The Sarbanes-Oxley Act of 2002, which established the PCAOB, provides the Commission with oversight responsibility over the PCAOB.
At any time, the PCAOB might also inspect any other registered firm that plays a role in the audit of an issuer, and the PCAOB has a practice of inspecting, in each year, some firms in that category. The PCAOB began conducting inspections of registered firms’ audits of brokers and dealers in 2011. In 2002, Congress passed the Sarbanes-Oxley Act, named after its sponsors Senator Paul Sabanes (D-MD) and Representative Michael G. Oxley (R-OOH-4). In this regard, Sarbanes-Oxley has been the focus of intense discussion. It has now been over four years since the corporate scandals rocked investor confidence and led to the passage of Sarbanes-Oxley.
We are also seeing audit firms realign their business models to focus on quality audit services, ethics, and appropriate levels of independence. As I mentioned, public accounting firms that are required to register with the PCAOB are subject to the Board’s inspection program. PCAOB inspections replaced the audit profession’s previous peer reviews, which focused on compliance with applicable standards but did not address the overall audit environment.
The actual number of firms that the PCAOB regularly inspects fluctuates since certain registered firms cease to issue audit opinions while other firms will begin to issue audit reports for the first time. In general, the PCAOB inspects each firm in this category either annually or triennially, depending upon whether the firm provides audit reports for more than 100 issuers (annual inspection) or 100 or fewer issuers (triennial inspection).
The Public Company Accounting Oversight Board (PCAOB) was established with the passage of the Sarbanes-Oxley Act of 2002. The act was passed in response to various accounting scandals of the late 1990s. The board protects investors and other stakeholders of public companies by ensuring that the auditor of a company’s financial statements has followed a set of strict guidelines.
Inspections assess registered firm compliance with applicable laws, rules and professional standards in the firms’ systems of quality control and in the portions of audits selected for inspection. An auditor is an independent certified public accountant who examines the financial statements that a company’s management has prepared. Many of these financial statements – including those in the company’s annual report and those provided to shareholders in connection with the solicitation of proxies for annual meetings – must be examined and reported on by an independent auditor.