Role of the Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board has a broad mandate to oversee public companies' auditing procedures. The board's role is to protect public investors from potentially misleading or fraudulent uses of accounting rules.
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History
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Originally, auditors of public companies were a self-regulating industry. An entity called the Finance and Accounting Standards Board (FASB), made up entirely of auditors, policed auditing practices and standards. This self-regulation, however, was insufficient to prevent problematic accounting practices. Several high-profile accounting scandals prompted legislators to create an entity that would provide more rigorous oversight of accounting firms.
Creation
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The Sarbanes-Oxley Act (2002) established the Public Company Accounting Oversight Board as a nonprofit corporation with the goal of promoting "informative, fair, independent audit reports." Unlike the FASB, the PCAOB is an independent oversight entity, answerable to the Securities and Exchange Commission. The PCAOB has numerous powers (some of them open-ended) granted to support its role as an enforcement agency.
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Registration Requirement
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Any accounting firm that audits a public company must register with the PCAOB. Public companies audited by a PCAOB-registered firm are required to pay fees directly to the PCAOB; these fees constitute a considerable portion of the board's funding. Registration with the PCAOB also subjects auditing firms to board inspection.
Oversight Role
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The board enforces good auditing practices. In this role, the board may not only enforce compliance with all laws, rules and professional standards governing the industry, but also create any additional rules or procedures it deems necessary to ensure a proper audit. The board also scrutinizes auditing practices within a specific accounting firm (or even on a particular audit). The board may also forbid accounting firms from offering services ancillary to auditing, if the board feels those services might interfere with the auditors' abilities to conduct an impartial audit.
Disciplinary Power
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The board has broad power to investigate accounting infractions. Should its investigations reveal violations of accounting or auditing rules, the board can discipline auditing firms or specific auditing professionals. Disciplinary measures can include revocation of board registration, revocation of accounting credentials, fines and other penalties. The purpose of such measures is to deter violations; in addition to actual observed violations, the board may also act to forestall perceived potential violations.
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