The Public Company Accounting Oversight Board (PCAOB) is a nonprofit company created by the Sarbanes-Oxley Act (SOX) of 2002, signed into law by President Bush. The SOX introduced far-reaching reforms into the American business space. It’s primary objective is to provide streamlined patterns and systems of American businesses, ensuring that the highest standards are adhered to. 

Over the years, the PCAOB has functioned with the aid of two advisory boards. They are known as the Standing Advisory Group and the Investor Advisory Group. The two boards shared the same functions, which were to provide advice and direction for activities of the PCAOB.

The Investor Advisory Group was dissolved on the establishment of the Standing Advisory Group. Prior to its dissolution on March 29, 2021, it was primarily tasked with advising the PCAOB on issues relating to investors, especially concerning investor protection in relation to auditing. 

The Standing Advisory Group (SAG) is currently functional and specifically helps to develop practical auditing standards. The 5-man SAG board is appointed for a 5-year term by the Securities and Exchange Commission (SEC), with advice from the board of Governors of the Federal Reserve and the Secretary of Treasury. These board members are highly skilled individuals who meet periodically to come up with standards needed to effectively run the PCAOB. 

The Public Company Accounting Oversight Board (PCAOB) was created to implement and oversee these reforms efficiently.

The Core Functions of the PCAOB

The Public Company Accounting Oversight Board (PCAOB) oversees private auditors who prepare audit reports for public companies. This move came as a result of the various accounting scandals that trailed firms within that period notably the Enron Scandal of 2001. Thus, the PCAOB’s regulation of the space is ostensibly to restore public confidence in companies that trade stocks publicly. 

Furthermore, the PCAOB protects the interest of investors who may not have insider information regarding the workings of these publicly traded companies. It is not very unusual to find directors colluding with independent auditors to falsify a company’s financial results. In such situations, investors and shareholders, who do not have direct access and firsthand information, will be left with the short end of the stick.

Another audit risk which the PCAOB seeks to prevent is errors due to oversight from auditors. In some cases, the auditors may not deliberately falsify the information in the auditing report that they provide. However, they could inadvertently make omissions which nonetheless affect investors’ and shareholders’ decisions. 

Responsibilities of the PCAOB

To help ensure that investors make objective decisions, the PCAOB bears the following responsibilities.  

Registration of Accounting Firms

One of the main responsibilities of the PCAOB is the registration of public accounting firms. This is to ensure that there is a database for firms to make for effective monitoring. Also, the PCAOB makes it mandatory for all auditing companies that audit public companies to register with it.

Preparation of Inspection Reports

The PCAOB prepares annual inspection reports on auditing companies that audit up to 100 public companies within a given year. For auditing firms that audit less than 100 public companies, the inspection reports are prepared once every three years. The purpose of the reports is to ascertain whether these firms are duly compliant with the auditing standards, that the reports are error-free, and that any irregularities are quickly reported and handled.

Enforcement

The PCAOB is responsible for enforcing the provisions of the law. At any point where the PCAOB determines a severe violation of the statute’s provisions, it convenes a hearing. There, it imposes sanctions on defaulting parties. 

Development of Standards

The PCAOB develops auditing standards that auditing firms have to follow. There is a comprehensive list of the standards on the PCAOB website. However, these standards are reviewed, tactically modified, and released quarterly. 

The PCAOB Auditing Standards

The core responsibility of the PCAOB is the creation of auditing standards that have to be followed by auditors. The PCAOB releases specific yardsticks periodically. Currently, In addition to the General Auditing Standards, it has released several auditing standards for the audits of the financial statements of fiscal years ending December 15 2020, and subtly different standards for all other years prior. 

However, the General Auditing Standards includes provisions that spell out the definition of vital concepts, as well as the responsibilities of independent auditors in ensuring that their client companies remain compliant with the SOX Act. 

More importantly though, the General Auditing Standards provides for the procedural guidelines for commencing and going through with the audit planning and risk assessment. In the last category, it provides for post-audit matters, actions the independent auditor ought to take after a thorough independent audit reporting process. 

How Do You Make a Complaint to the PCAOB?

The PCAOB provides for an anonymous, efficient, and effective means of registering complaints or reports of violations of the various auditing guidelines. You can use the contact information on its Tips and Referral page to lodge your complaint. Be rest assured, though, the PCAOB prioritizes the safety of informants and so will do all within its power to make sure that the identities of such individuals are kept private.

When the PCAOB receives a complaint or tip, it thoroughly investigates it and then takes the appropriate actions necessary in the circumstance, including commencing criminal prosecution of the party involved. 

Once again, you need not worry. The board has an elaborate whistleblower protection process that includes measures to provide legal protection for any whistleblower unfairly prejudiced because of a tip sent in. 

Looking to learn more about PCAOB? Controllers Council is a national community and platform of Controllers, Accounting and Finance professionals focused on accounting best practices, information and resources, recognition and networking. Membership has many features and benefits to propel your career and expertise, and to be an active participant in our exciting community. Discuss topics like accounting and CPA compensation and more in our forum. Become a member today.

Additional PCAOB Resources

PCAOB Previews Inspections Changes Amid COVID (AccountingToday)

PCAOB Professional Standards & Rulemaking (AICPA)

The Creation of the PCAOB: A Watershed Moment (NYSSCPA)

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