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.

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.

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.

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 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.

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.

Engagement Quality Reviews: A Comparison of Audit Firm Practices

2007 ◽  
Vol 26 (2) ◽  
pp. 167-181 ◽  
Author(s):  
Kathryn K. Epps ◽  
William F. Messier
Keyword(s):  
Securities And Exchange Commission ◽  
Accounting Firms ◽  
The Public ◽  
Quality Review ◽  
Audit Review ◽  
Audit Planning ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Quality Control Mechanism

Engagement quality (concurring partner) review is an important part of the audit review process. It is one quality control mechanism used by public accounting firms to monitor the quality of audit engagements. The engagement quality reviewer serves as an evaluator of the performance of the engagement partner and engagement team. Concerns about the effectiveness of existing firm concurring partner review practices have led to increased partner sanctions imposed by the Securities and Exchange Commission (SEC). In addition, Section 103 of the Sarbanes-Oxley Act of 2002 directs the Public Company Accounting Oversight Board (PCAOB) to develop an auditing standard on engagement quality review. This practice note reports on an analysis of six major firms' written guidance and practice aids for engagement quality review. Our comparison of the firms' guidance shows some differences in the assignment of engagement quality reviewer, the participation of the engagement quality reviewer in audit planning, the extensiveness of practice aids, and the involvement of engagement quality reviewer during the course of audit engagements. Lastly, we identify a number of research questions and practice implications.

A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period

2013 ◽  
Vol 33 (2) ◽  
pp. 59-78 ◽  
Author(s):  
Rosemond Desir ◽  
Jeffrey R. Casterella ◽  
Julia Kokina
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Sample Period ◽  
Accounting Firms ◽  
The Public ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Public Company ◽  
Client Relationships

SUMMARY: On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release seeking comments on ways to enhance auditor independence. The Board notes that higher failure rates in new audit engagements might be linked to unrealistic pricing. The Board's concern is that a new auditor might be more susceptible to management pressure if initial-year audit fees are set artificially low. Prior to the Sarbanes-Oxley Act (SOX) of 2002, empirical evidence shows that auditors discounted their initial-year audit fees. This practice, known as lowballing, was expected to decrease significantly after the enactment of SOX. Indeed, findings in Huang, Raghunandan, and Rama (2009) seem to confirm that Big 4 auditors charged a fee premium on new auditor-client relationships in 2006. However, it is not clear if more recent post-SOX initial-year audits are free of lowballing. We investigate whether lowballing exists in new auditor-client relationships in an “extended” post-SOX environment for the years 2007 to 2010. Our results suggest that both Big 4 and non-Big 4 accounting firms discounted their initial-year audit fees during our sample period (2007–2010). These findings should be of interest to the PCAOB as it searches for ways to bolster auditor independence. Data Availability: Available from public sources.

scholarly journals The Goals and Promise of the Sarbanes–Oxley Act

2007 ◽  
Vol 21 (1) ◽  
pp. 91-116 ◽  
Author(s):  
John C Coates
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Public Institution ◽  
Section 404 ◽  
Public Companies ◽  
The Public ◽  
Corporate Scandals ◽  
Sarbanes Oxley ◽  
Public Company

The primary goal of the SarbanesOxley Act was to fix auditing of U.S. public companies, consistent with its full, official name: the Public Company Accounting Reform and Investor Protection Act of 2002. By consensus, auditing had been working poorly, and increasingly so. The most important, and most promising, part of SarbanesOxley was the creation of a unique, quasi-public institution to oversee and regulate auditing, the Public Company Accounting Oversight Board (PCAOB). In controversial section 404, the law also created new disclosure-based incentives for firms to spend money on internal controls, above increases that would have occurred after the corporate scandals of the early 2000s. In exchange for these higher costs, which have already fallen substantially, SarbanesOxley promises a variety of long-term benefits. Investors will face a lower risk of losses from fraud and theft, and benefit from more reliable financial reporting, greater transparency, and accountability. Public companies will pay a lower cost of capital, and the economy will benefit because of a better allocation of resources and faster growth. SarbanesOxley remains a work in progress -- section 404 in particular was implemented too aggressively - but reformers should push for continued improvements in its implementation, by PCAOB, rather than for repeal of the legislation itself.

Audit Standard Setting and Inspection for U.S. Public Companies: A Critical Assessment and Recommendations for Fundamental Change

2009 ◽  
Vol 23 (2) ◽  
pp. 221-237 ◽  
Author(s):  
Steven M. Glover ◽  
Douglas F. Prawitt ◽  
Mark H. Taylor
Keyword(s):  
Standard Setting ◽  
The United States ◽  
Current Approach ◽  
Public Companies ◽  
Accounting Firms ◽  
Publicly Traded Companies ◽  
Sarbanes Oxley ◽  
Composition And Structure ◽  
Audit Standard ◽  
High Level

SYNOPSIS: The Sarbanes-Oxley Act of 2002 (SOX) established the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting firms that audit publicly traded companies in the United States. In this commentary we outline why we believe the PCAOB’s audit standard-setting and inspection models are inefficient and dysfunctional. We assert that the Board’s ability to achieve its mission is limited by its early choices, together with its incentives, organizational composition, and structure. We support our assertions with a number of indicators of serious problems and flaws in the current approach. We also present high-level recommendations for change for policy makers, regulators, and leaders in the profession to consider in developing improved approaches to audit standard setting, inspection, and enforcement.

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