The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization tasked with regulating auditors of publicly traded companies to minimize audit risk. Specifically, PCAOB supervises the audits of public companies, brokers, and dealers registered with the U.S. Securities and Exchange Commission (SEC).
Key Takeaways:
- The PCAOB regulates audits of publicly traded companies, aiming to minimize audit risk.
- It was established alongside the Sarbanes-Oxley Act of 2002 following multiple accounting scandals in the late 1990s.
- The board safeguards investors and other stakeholders by ensuring that auditors adhere to stringent guidelines.
Understanding the Public Company Accounting Oversight Board
The PCAOB was created with the passage of the Sarbanes-Oxley Act of 2002 as a direct response to significant accounting scandals. This act mandates that auditors of a company’s financial statements follow strict guidelines to ensure integrity and reliability.
Overseen by the Securities and Exchange Commission (SEC), since 2010, the PCAOB also monitors the audits of SEC-registered brokers and dealers.
PCAOB Advisory Groups
The organization operates with the support of two pivotal advisory groups: the Standing Advisory Group and the Investor Advisory Group. These entities provide essential advice and insights to the Board.
The Standing Advisory Group
The Standing Advisory Group convenes semi-annually to deliberate on:
- Data and technology
- Cybersecurity
- Corporate culture
- Communications on PCAOB standards
- Governance and leadership of quality control systems
- Current or emerging issues affecting audits or auditors
- Implementation of the new auditor’s report
The Investor Advisory Group
Gathering annually, the Investor Advisory Group discusses the strategic planning of the PCAOB, quality control standards, implementation of the new auditor’s report, and Form AP.
PCAOB’s Strategic Plan
Outlined in its annual report, the PCAOB’s five-step strategic plan includes:
- Enhancing the quality of audit services through monitoring, prevention, detection, and remediation.
- Anticipating and reacting to environmental changes, including technological risks and opportunities.
- Promoting transparency and accessibility via active stakeholder engagement.
- Ensuring operational excellence by utilizing resources, information, and technology efficiently.
- Empowering and rewarding PCAOB team members to achieve shared goals.
PCAOB in Action
As of 2021, there were 1,709 PCAOB-registered firms in the United States, according to PCAOB’s annual report.
Firms conducting audits of public companies, brokers, and dealers must register with the PCAOB. These registered firms undergo periodic inspections to ensure compliance with set standards. The PCAOB imposes penalties for infractions to enforce standards.
In 2020, PCAOB sanctioned 13 firms and 18 individuals after inspecting 219 audits. By 2021, sanctions were imposed on 14 firms and 15 individuals following 191 inspections.
Related Terms: audit risk, Sarbanes-Oxley Act, SEC, financial statements, audit inspection.
References
- PCAOB. “Annual Report”, Page 6.
- PCAOB. “Annual Report”, Page 5.
- PCAOB. “2020 Annual Report”, Pages 8-9.
