Nonpublic Companies That Are Audited May Also Want Interim Reviews Auditors Must Then Follow the

You may have heard the terms PCAOB, PCAOB audit, or PCAOB accounting.You hear it a lot, just what does PCAOB represent or what is the PCAOB?

What is the PCAOB?

The PCAOB is an acronym for the Public Visitor Accounting Oversight Board. The PCAOB is a regulatory board that oversees the audits of public companies.

The PCAOB is board comprised of v members appointed by the SEC. Each lath member serves full-time for five-year terms. While members of the PCAOB may accept a variety of backgrounds, two members must be Certified Public Accountants.

Lath members are supported by over 800 staffers in a number of departments including Economic and Risk Assay, Registration and Inspections, and Enforcement and Investigations. So what exactly do all these people practice?

PCAOB History

The PCAOB was created by Congress in 2002 every bit part of the Sarbanes-Oxley Act (SOX) that was passed in response to a serial of accounting scandals (due east.m., Enron, Worldcom, etc.) to provide better oversight of the auditing manufacture. The auditing industry cocky-policed itself before the formation of the PCAOB. However, this approach seemed to be failing the public in the early 2000s.

The PCAOB reports to the Securities and Exchange Commission (SEC) which is charged with the responsibility of protecting investors and maintaining the The states securities markets. The PCAOB'southward mission and vision statements highlight the aims of their system:

Mission: "The PCAOB is a nonprofit corporation established by Congress to protect investors and the public interest past promoting informative, accurate, and independent inspect reports and to oversee the audits of public companies and broker-dealers."

Vision: "The PCAOB seeks to exist a model regulatory system. Using innovative and cost-effective tools, the PCAOB aims to improve audit quality, reduce the risks of auditing failures in the U.Southward. public securities market and promote public trust in both the financial reporting procedure and auditing profession." ( Source )

PCAOB vs. AICPA (American Institute of Certified Public Accountants)

What is the departure betwixt the AICPA and PCAOB? While closely linked, it is important to empathize the similarities and differences between AICPA and PCAOB. The beginning departure betwixt the 2 is their blazon of organizational structure. The PCAOB is a nonprofit corporation and the AICPA is a professional member association.

Both the AICPA and PCAOB are related to the accounting/audit industry. Notwithstanding, their roles are very different. The AICPA is a professional person association of accounts and the PCAOB is responsible for monitoring accountants and accounting firms. Both entities are responsible for guidance to the inspect and business relationship field. The AICPA created standards that guide accounting professionals. The PCAOB has adopted some of the AICPA'due south standards and applied them to public bookkeeping firms.

Some other contrast between the two is the telescopic or each entity. The PCAOB deals specifically with the limited telescopic of public accounting firms and the audits of public companies. The AICPA provides guidance across a spectrum of bookkeeping services that it members perform for a variety of companies.

What does the PCAOB exercise? Iv Key Activities

1) PCAOB Registration

The PCAOB registers public bookkeeping firms. In order to monitor, the PCAOB needs to know who the firms are. All firms performing financial audits of publicly registered companies must annals with the PCAOB. Currently, there are 1,793 firms registered.

2) PCAOB Auditing Standards

The PCAOB lath dictates the professional auditing standards that registered auditing firms must apply. These standards are utilized to monitor accounting firms. Prior to the PCAOB, standards were set by the AICPA. The PCAOB has largely adopted the AICPA's auditing standards, added its own, and reorganized the standards to bring them together in a single, integrated numbering system. Delight refer to the PCAOB's website for a total listing of all the standards.

The PCAOB Independence Rules and the Professional Code of Bear are PCAOB rules that are worth highlighting. The PCAOB adopted the AICPA Professional Code of Comport (Code). The Code is often referred to as their Independence standards. The Lawmaking's requirements include the integrity, objectivity, and upstanding standards that CPA practitioners should adhere to in order to best serve the public.

A CPA or CPA firm'due south first duty is to serve the public–non the client. The Code establishes guidelines to aid CPAs' from losing their independence. It provides guidance and examples of relationships and activities that would threaten one's actual or perceived independence. An instance is an auditor who has fiscal interests in an audit customer or shut relationships with personnel in key positions inside the client'due south organization. The Lawmaking explains the actions that a business firm or individuals may accept to eliminate or reduce threats to independence. Efforts taken to ensure independence should exist documented and so firms can demonstrate their efforts to remain contained. The AICPA'south Professional Code of Behave tin can be constitute here.

3) PCAOB Inspection Reports

The PCAOB performs inspections to evaluate firms' compliance with the standards mentioned earlier. The PCAOB's inspections focus on firms that audit 100 or more public companies each year. The PCAOB inspects firms that inspect fewer than 100 public companies at least once every three years. The PCAOB stated that the inspections volition focus on areas of considered higher risk. These areas include internal command over financial reporting, assessing and responding to risks of cloth misstatement, and accounting estimates.

A risk-based arroyo is employed by the PCAOB to selects audit engagements to review. The goal of these inspections is to decide if there are errors in how an accounting firm performed its audit procedures and documentation and if there are acceptable quality controls in place within the audit firm. If the PCAOB determines that there was not sufficient evidence to back up the auditor'due south opinion, audit deficiencies are reported in the inspection study that is published on the PCAOB website.

4) Enforcement

Finally, as a upshot of the inspections, if the lath determines a serious violation has occurred, an enforcement hearing could exist conducted. The PCAOB can impose sanctions and fines to firms or individual auditors. A recent instance is the SEC/PCAOB issuing a $50 million to KPMG for misconduct including the revision of work papers to reduce the likelihood of receiving findings from a PCAOB inspection.

Summary

To summarize, the primary goals of the PCAOB are to monitor the audit firms, in order to restore and maintain investors and the public's trust in the field, which took a big striking with the aforementioned accounting scandals. The PCAOB also focuses on promoting and enforcing high professional person standards to improve the quality of the audit services offered by the registered firms.

Delight click the following links to larn more about the services provided by Linford & Co: SOC i, SOC 2, HIPAA audits, Royalty Audits, FedRAMP.

This article was originally published on June 21, 2017, and updated on August 14, 2019.

Isaac Clarke is a partner at Linford & Co., LLP. He began his career with Ernst & Young in 2003 where he developed his inspect expertise over a number of years. Isaac specializes in and has conducted numerous SOC 1 and SOC ii examinations for a diversity of companies —from startups to Fortune 100 companies. Isaac enjoys helping his clients understand and simplify their compliance activities. He is attentive to his clients' needs and works meticulously to ensure that each examination and report meets professional person standards.

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