A Decade after Sarbanes-Oxley: The Need for Ongoing Vigilance, Monitoring, and Research

2014 ◽  
Vol 28 (4) ◽  
pp. 917-930 ◽  
Author(s):  
Jeanette M. Franzel
Keyword(s):  
Audit Quality ◽  
Warning Signs ◽  
Regulatory Regime ◽  
Government Accountability ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
The Impact ◽  
Audit Independence

SYNOPSIS After more than a decade since passage of the Sarbanes-Oxley Act and the creation of the Public Company Accounting Oversight Board (PCAOB), it is appropriate and necessary to ask questions about the present state of audit quality and evaluate the impact and effectiveness of PCAOB's oversight programs. Written from the viewpoint of a current PCAOB Board member and former Managing Director of the U.S. Government Accountability Office (GAO), this paper discusses the warning signs of serious auditing problems in the years preceding the Act, and the role that the GAO played in analyzing those risks and calling for greater oversight of the accounting profession's auditing public companies. We must be vigilant and continually examine the activities of the auditing profession and the regulatory regime to ensure that audit independence and audit quality remain front and center to ensure investor protection and safeguard the public interest. Academic researchers play a key role in this system of vigilance. This paper provides views on many areas within the auditing profession that would benefit from further research and analysis, as well as opportunities for research that could be useful to the PCAOB as it considers current and future regulatory priorities.

scholarly journals Is The Pcaob a “Heavily Controlled Component” Of The Sec?: An Essential Question In The Constitutional Controversy

2009 ◽  
Vol 71 (3) ◽  
Author(s):  
Donna M. Nagy
Keyword(s):  
Supreme Court ◽  
Separation Of Powers ◽  
Free Enterprise ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Essential Question ◽  
The U.S

The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, described as “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley” or the “Act”), the Public Company Accounting Oversight Board (the “PCAOB” or the “Board”) was structured as “a strong, independent board to oversee the conduct of the auditors of public companies.” Its principal mission was to prevent the type of auditing failures that contributed to the scandals at Enron, WorldCom, and numerous other public companies in the period leading up to the passage of the Act.

The Impact of the PCAOB Triennial Inspection Process on Inspection Year and Non-Inspection Year Audits

2021 ◽  
Author(s):  
Lawrence J. Abbott ◽  
William L Buslepp
Keyword(s):  
Audit Quality ◽  
The Public ◽  
Learned Behavior ◽  
Public Company ◽  
Inspection Process ◽  
One Year ◽  
The Impact

The Public Company Accounting Oversight Board (PCAOB) inspects auditors with fewer than 100 publicly held clients, once every three years (i.e., triennial inspection). In doing so, the PCAOB may inspect any audit engagement within the three-year window, including audits completed only months earlier ("inspection year" audits) and audits with at least a one-year, if not two-year lag ("non-inspection year" audits). We theorize the triennial inspection process affects audit quality levels, whereby auditors impose higher (lower) audit quality during inspection years (non-inspection years). We find clients of triennially inspected auditors have significantly lower levels of accruals during inspection years. Further, this change can be attributed to additional audit effort expended during inspection years. Finally, we find some evidence this is a learned behavior developed after the initial round of inspections. Our evidence suggests auditors opportunistically increase (decrease) audit quality during inspection (non-inspection) years in response to the triennial inspection process.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 31: PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

2011 ◽  
Vol 5 (1) ◽  
pp. C11-C15 ◽  
Author(s):  
Joseph Brazel ◽  
James Bierstaker ◽  
Paul Caster ◽  
Brad Reed
Keyword(s):  
Audit Quality ◽  
Exposure Period ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Auditing Standards ◽  
Supervision Practices

SUMMARY: Recently, the Public Company Accounting Oversight Board (“PCAOB” or “Board”) issued a release to address, in two ways, issues relating to the responsibilities of a registered public accounting firm and its supervisory personnel with respect to supervision. First, the release reminds registered firms and associated persons of, and highlights the scope of, Section 105(c)(6) of the Sarbanes-Oxley Act of 2002 (“the Act”), which authorizes the Board to impose sanctions on registered public accounting firms and their supervisory personnel for failing to supervise reasonably an associated person who has violated certain laws, rules, or standards. Second, the release discusses and seeks comment on conceptual approaches to rulemaking that might complement the application of Section 105(c)(6) and, through increased accountability, lead to improved supervision practices and, consequently, improved audit quality. The PCAOB provided for a 91-day exposure period (from August 5, 2010, to November 3, 2010) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts.

PCAOB International Inspections and Audit Quality

2016 ◽  
Vol 92 (5) ◽  
pp. 143-166 ◽  
Author(s):  
Jagan Krishnan ◽  
Jayanthi Krishnan ◽  
Hakjoon Song
Keyword(s):  
Audit Quality ◽  
Value Relevance ◽  
Accounting Firms ◽  
The Public ◽  
Public Company ◽  
Accounting Numbers ◽  
Abnormal Accruals ◽  
Relevance Measure ◽  
The Impact ◽  
First Time

ABSTRACT We investigate the impact of the Public Company Accounting Oversight Board's (PCAOB) first-time inspections of foreign accounting firms by examining abnormal accruals around the inspection year, and the value relevance of accounting numbers around the inspection report date, for their U.S. cross-listed clients. We document lower abnormal accruals in the post-inspection period, and greater value relevance of accounting numbers in the post-report period for clients of the inspected auditors, compared with non-cross-listed clients or clients of non-inspected auditors within the inspected countries. Comparisons of the PCAOB's joint inspections with PCAOB stand-alone inspections indicate that while both experience lower post-inspection abnormal accruals, the former benefit more than the latter. The value relevance measure, in contrast, shows greater increases for the PCAOB stand-alone inspections than for joint inspections. Comparing the inspection effects for auditors with and without deficiency reports, we find no systematic differences for accruals or for value relevance.

PCAOB Enforcements: A Review of the First Three Years

2009 ◽  
Vol 3 (2) ◽  
pp. A15-A34 ◽  
Author(s):  
David L. Gilbertson ◽  
Terri L. Herron
Keyword(s):  
Disciplinary Action ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company

SUMMARY: The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (hereafter, PCAOB) to oversee audits of public companies. When violations of the Sarbanes-Oxley Act or PCAOB rules are found, the PCAOB may impose sanctions as severe as revoking a firm’s registration or barring a person from participating in audits of public companies. This paper describes the PCAOB enforcement actions issued through 2008. We examine characteristics of the disciplined firms, their PCAOB inspections, the related issuer clients, and the circumstances that resulted in the disciplinary proceedings. Consistent with prior research, we find that firms with issues rising to the level of disciplinary action generally have longer inspections and more audit deficiencies than firms with inspection deficiencies not resulting in sanctions. Disciplined firms also tend to have fewer partners, audit more SEC issuers, and have clients that are smaller and less financially sound.

scholarly journals The PCAOB’s First Seven Years: A Retrospection

2010 ◽  
Vol 4 (1) ◽  
pp. A9-A20 ◽  
Author(s):  
Bill Gradison ◽  
Ron Boster
Keyword(s):  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Board Level

SUMMARY: The Public Company Accounting Oversight Board (PCAOB) turned seven years old in January 2010. Up until that date, it had spent more than three-quarters of a billion dollars of compulsory “fees” paid predominantly by larger public companies (issuers) to finance the specific mandate given it by the Sarbanes-Oxley Act of 2002.1 The authors were there from the beginning. We offer a Board-level perspective into the PCAOB’s key programs and policies.

scholarly journals Increasing Transparency: A Prototype of the Nonpublic Portions of PCAOB Large-Firm Inspection Reports

2011 ◽  
Vol 5 (1) ◽  
pp. A1-A21 ◽  
Author(s):  
Rachael J. Evans ◽  
Ronald S. Boster ◽  
Bill Gradison
Keyword(s):  
Quality Control ◽  
Large Firm ◽  
Public Companies ◽  
Accounting Firms ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Audit Reports

SUMMARY:The Sarbanes–Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) and requires it to conduct annual inspections of accounting firms that regularly provide audit reports for more than 100 public companies (issuers). Certain information in these reports is, by law, nonpublic—in particular, findings of “quality control” (QC) deficiencies. Having access to nonpublic portions of PCAOB inspection reports, the authors create an illustrative example of a nonpublic portion of a large-firm inspection report, albeit with specific firms and issuers de-identified.

Auditor Independence and Auditor-Provided Tax Service: Evidence from Going-Concern Audit Opinions Prior to Bankruptcy Filings

2008 ◽  
Vol 27 (2) ◽  
pp. 31-54 ◽  
Author(s):  
Dahlia Robinson
Keyword(s):  
Audit Quality ◽  
Auditor Independence ◽  
The Public ◽  
Going Concern ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Reporting Decisions ◽  
Going Concern Opinion ◽  
Information Spillover

SUMMARY: This study examines whether auditors’ provision of tax services impairs auditor independence by focusing on auditors’ going-concern opinions among a sample of bankruptcy filing firms. The evidence from the bankruptcy setting is particularly salient given that the bankruptcy of corporations such as Enron motivated several provisions of the Sarbanes-Oxley Act (SOX) of 2002. More recently, auditors’ provision of tax service to their audit clients has been the focus of new rules by the Public Company Accounting Oversight Board (PCAOB). Consistent with improved audit quality from information spillover, the study documents a significant positive correlation between the level of tax services fees and the likelihood of correctly issuing a going-concern opinion prior to the bankruptcy filing. One implication of this result is that restricting tax services by auditors of poorly performing firms may diminish the quality of auditors’ reporting decisions without leading to an improvement in auditor independence.

The Impact of PCAOB Auditing Standard No. 5 on Audit Fees and Audit Quality

2012 ◽  
Vol 26 (3) ◽  
pp. 493-511 ◽  
Author(s):  
Dechun Wang ◽  
Jian Zhou
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Test Sample ◽  
Large Sample ◽  
The Public ◽  
Public Company ◽  
The Impact ◽  
Jel Classifications

SYNOPSIS We investigate the impact of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5 (AS5) on audit fees and audit quality. AS5 supersedes Auditing Standard No. 2 (AS2), and became effective for audits for accelerated filers for fiscal years ending on or after November 15, 2007. Using a large sample of accelerated filers subject to AS5, we find evidence that audit fees decrease upon the adoption of AS5. More importantly, even though AS5 adoption reduces audit fees for our test sample, we find no evidence of a decrease in audit quality. In summary, we document evidence that AS5 improves the efficiency of internal control audits. JEL Classifications: M41.

Auditing the Auditors: A Case on PCAOB Inspection Reports of Registered Public Accounting Firms

2009 ◽  
Vol 3 (1) ◽  
pp. B1-B18 ◽  
Author(s):  
Brian Daugherty ◽  
Marshall K. Pitman
Keyword(s):  
Public Accounting ◽  
Public Companies ◽  
Accounting Firms ◽  
Audit Firm ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Public Accounting Firms ◽  
Audit Evidence ◽  
Inspection Process

SUMMARY: We present a timely practice-oriented case related to the inspection process of registered firms by the Public Company Accounting Oversight Board (PCAOB). This case allows auditing students an opportunity to explore the unique challenges that public accounting firms auditing U.S. public companies face with respect to the PCAOB inspection process. The case focuses on large and small registered firms (inspected annually and triennially, respectively) receiving an inspection report where the PCAOB identified certain matters considered to be audit deficiencies of such significance that the inspection team believed the audit firm did not obtain sufficient competent evidential matter to support the auditor’s opinion. The case exposes students to the PCAOB inspection process, highlights many deficiencies noted to date by the PCAOB inspectors, and emphasizes the importance of sufficient and appropriately documented audit evidence to support audit opinions. By reviewing ‘deficient’ inspection reports, students gain an appreciation for common audit deficiencies as well as the subjective nature of portions of the authoritative literature and the inspection process itself. The case reinforces students’ understanding of the practical matters involved in appropriately obtaining, evaluating, and documenting audit evidence, as well as educates students on the PCAOB inspection process in order to address important competencies required of Sarbanes-Oxley era audit professionals.

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