About the Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (PCAOB) was created by the U.S. Congress through the Sarbanes-Oxley Act of 2002 to improve the accuracy and reliability of publicly traded companies' audits performed by accounting professionals. The PCAOB acts as a security measure on behalf of investors and implements regulations to improve corporate financial disclosures.

Function

The PCAOB has several responsibilities that go beyond the registry of public accounting firms and accounting procedures for the production of quality, ethical and independent audits. The board conducts its own inspections, investigations and disciplinary proceedings to make sure registered accounting firms comply with the Sarbanes-Oxley Act.

Time Frame

The five members of the PCAOB serve terms of 5 years and can serve for only two terms, whether consecutive or not. They must work full-time without holding any other employment outside of the board. Every year, the board inspects accounting firms that perform 100 audits per year, and every 3 years to those providing fewer than 100 audits in a single year.

Features

The Securities and Exchange Commission (SEC)--an independent U.S. federal agency that overlooks the exchange of securities and protects investors--inspects the PCAOB's performance. Also, the SEC designates and removes board members, authorizes its budget, applies disciplinary actions and rules, and considers appeals against PCAOB reports.

Identification

Even though only the U.S. Congress can dissolve it, the PCAOB functions as any other private nonprofit corporation in the United States, and its members are not considered employees or agents of the federal government. Two of the board members must be or have been certified public accountants, and the chairperson should not have been a practicing public accountant for 5 years at the date of appointment to the board.

Size

As of December 12, 2008, there were 1,867 firms registered with the PCAOB. The board requires accounting firms to register electronically through the board's website. As of October 22, 2003, accounting firms must be approved by the board before being allowed to prepare or issue an audit report to a public corporation.

Prevention/Solution

To prevent conflicts of interest between publicly traded corporations and their auditors, the PCAOB prohibits those same public accounting firms from providing bookkeeping services, financial information system design, appraisal or valuation reports, actuarial services, internal audit outsourcing services, management or human resources services and financial or legal services to the same clients they serve as auditors.

Resources

• The Sarbanes-Oxley Act of 2002