The Public Company Accounting Oversight Board was created to oversee the audits of public businesses, defend the interests of investors, and grow the public’s interest in the organization of unbiased and accurate audit reports.
The PCAOB also works to enhance auditor independence, professional skepticism, and audit quality.
What Are Its Origins?
The origins of the PCAOB can be traced back to the 1930s, when Congress first recognized the need to regulate the accounting profession to protect investors. Congress created the Securities and Exchange Commission (SEC) and tasked it with overseeing the securities markets and enforcing federal securities rules.
The SEC has the authority to register and manage accounting firms that prepare audited financial statements for public companies.
In 2002, following corporate scandals at Enron and WorldCom, Congress passed the Sarbanes-Oxley Act (SOX). SOX significantly enhanced the SEC’s oversight of public company audits and created the PCAOB as a separate, independent entity. The PCAOB is overseen by the SEC but has its own budget and is run by a board of directors.
The PCAOB’s mission is to “foster the interests of investors and develop the public interest in the preparation of informative, accurate, and independent auditing by establishing standards and performing inspections.”
To achieve this mission, the PCAOB has broad powers to set auditing and ethics standards for public accounting firms, inspect them to ensure they comply with these standards, and take disciplinary action against them if they are not.
The PCAOB is funded through fees assessed on public companies and securities firms. These fees are generally passed on to investors.
How Does It Work?
The PCAOB sets auditing standards for public accounting firms and conducts inspections of these firms to ensure they are complying with these standards. The PCAOB also has the authority to take disciplinary action against firms that do not comply with its standards.
The PCAOB is overseen by a board of directors, which consists of five members appointed by the SEC. Three members must be “independent public accounting experts,” and two must be “public members” who are not affiliated with the accounting profession.
The board’s staff consists of accountants, attorneys, and other professionals with expertise in auditing, accounting, and securities regulation.
Key Programs and Initiatives
The PCAOB has several programs and initiatives designed to protect investors and further the public interest. These programs and initiatives include the following:
The PCAOB sets auditing standards for public accounting firms. These standards cover various topics, including auditor independence, audit planning, risk assessment, and audit documentation.
The PCAOB conducts inspections of public accounting companies to ensure they comply with its auditing standards.
Because it has the authority to discipline firms that do not comply with its standards, the PCAOB can take corrective action such as censuring, suspending, or barring from practicing before the SEC.
The PCAOB also has some outreach initiatives designed to educate investors and other interested parties about its work and the importance of investing in quality financial reporting. These outreach initiatives include:
Investor Advisory Group
The Investor Advisory Group provides input on the PCAOB’s activities and initiatives.
The PCAOB provides investor education resources on its website. These resources include articles, videos, and webinars on topics such as auditing basics and choosing a financial professional.
Through these programs and initiatives, the PCAOB is working to protect investors and further the public interest.
What Are Its Limitations?
There are some limitations on the PCAOB’s powers. For example, it can’t impose civil or criminal penalties. It also can’t order a firm to restate its financial statements. These penalties can only be set by the SEC.
Moreover, the PCAOB’s authority is generally limited to firms that audit public companies. It doesn’t directly oversee private companies or other organizations, such as nonprofit organizations.
Finally, the PCAOB is dependent on the SEC for its funding. This dependence could create a conflict of interest if the SEC acted in a way that wasn’t in the best interests of investors.
What Has It Done?
The PCAOB has been active since its inception in 2002. It has issued many auditing standards and conducted inspections of public accounting firms.
In recent years, the PCAOB has been criticized for not being aggressive enough in its oversight of public accounting firms. For example, some have criticized the PCAOB for not taking action against KPMG after the firm was found to have engaged in questionable tax practices.
How Can Investors Gain Access to Reports Filed with the PCAOB by Registered Public Accounting Firms?
Investors can access a firm’s most recent inspection report by going to the PCAOB website and entering the firm’s name in the search bar. The reports are free and can be accessed by anyone.
In addition, investors can access a list of all firms that are registered with the PCAOB by going to the “Firms” page on the PCAOB website. This page includes details on each firm, such as contact information and disciplinary history.
The PCAOB website also has a “News and Events” page that provides resources for investors and other interested parties. This page includes information on upcoming events, such as webinars and conferences, as well as recent news releases.
The Purpose of the PCAOB
The PCAOB is an important regulator of the public accounting profession. Its mission is to protect investors and cover the public interest. It’s an important organization that has been tasked with a difficult job. While it has limitations, it has generally been effective in protecting investors and furthering the public interest.