Public Company Accounting Oversight Board

1
Public Company Accounting Oversight Board

• www.pcaobus.org

2
Mission

• The PCAOB is a private-sector, non-profit
  corporation, created by the Sarbanes-Oxley Act of
  2002, to oversee the auditors of public companies
  in order to protect the interests of investors
  and further the public interest in the
  preparation of informative, fair, and independent
  audit reports.

3
Charge from Sarbanes-Oxley

• To oversee the audit of public companies that are
  subject to the securities laws, and related
  matters, in order to protect the interests of
  investors and further the public interest in the
  preparation of informative accurate and
  independent audit reports for companies the
  securities of which are sold to, and held by and
  for, public investors.

4
Charge from Sarbanes-Oxley

• the Act removed from auditors the ability to
  exclusively interpret their role in society
• that task is now in the hands of the PCAOB
• the Boards charge effectively requires it to be
  responsive to the public perception of the
  assurance that society needs and reasonably
  expects from an audit

5
Auditing Standards

• April 2003
• adopted existing 101 SASs
• December 2003
• Issued Auditing Standard No. 1
• References in Auditors' Reports to the Standards
  of the Public Company Accounting Oversight Board
• Approved by SEC May 2004

6
Auditing Standards

• March 2004
• Issued Auditing Standard No. 2
• An Audit of Internal Control Over Financial
  Reporting Performed in Conjunction with An Audit
  of Financial Statements
• Approved by SEC June 2004

7
Auditing Standards

• June 2004
• Issued Auditing Standard No. 3
• Audit Documentation
• Approved by SEC August 2004

8
Auditing Standards

• February 2006
• Issued Auditing Standard No. 4
• Reporting on Whether a Previously Reported
  Material Weakness Continues to Exist
• Approved by SEC February 2006

9
Auditing Standards

• the reference to generally accepted standards
  (GAAS) implied that the legitimacy of the
  standards depended on their general acceptance by
  auditors, i.e., a consensus of the accounting
  profession
• that is no longer the case

10
Auditing Standards

• the audit report reference to the audit being
  made in accordance with PCAOB standards is much
  more than a change in the identification of the
  source of the standards
• when the SEC approved the standards, they became
  Federal law

11
Auditing Standards

• Standard No. 2 from the PCAOB
• audits of internal control over financial
  reporting
• This standard is related to Section 404 of the
  Sarbanes-Oxley Act
• requires management to assess and report annually
  on internal control over financial reporting

12
Auditing Standards

• Under the PCAOBs new standard, the audit of a
  public company is now an audit of the companys
  financial reporting process, not just the
  financial statements

13
Auditing Standards

• Comments by Douglas Carmichael , Chief Auditor
  and Director of Professional Standards at PCAOB
• the annual and quarterly financial statements are
  the primary outputs of the process, but internal
  control over financial reporting provides
  discipline and safeguards over the process that
  produces those financial reports as well as other
  timely releases of financial information

14
Auditing Standards

• the ultimate objective of this new audit of a
  public company is to meet societys need for
  reliable outputs of the financial reporting
  process
• investors need and want assurance that the public
  companys releases of financial information
  during the period between audited annual
  financial statements are reliable

15
Auditing Standards

• Should there be two sets of auditing standards?
• one for public companies and one for private
  companies?

16
Auditing Standards

• is the perception of users of private company
  financial statements that auditors of such
  financial statements inspire a distinctly
  different level of confidence in the
  effectiveness of the audit?
• it is difficult to see how that would be in the
  public interest