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PCAOB

PCAOB. November 17, 2009 Martin F. Baumann Chief Auditor, Office of the Chief Auditor. Caveat. The views I express are my own and do not necessarily reflect the views of the Board, individual Board members, or other members of the Board’s staff. 2. Overview of PCAOB.

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PCAOB

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  1. PCAOB November 17, 2009 Martin F. Baumann Chief Auditor, Office of the Chief Auditor

  2. Caveat The views I express are my own and do not necessarily reflect the views of the Board, individual Board members, or other members of the Board’s staff. 2

  3. Overview of PCAOB • Created by the Sarbanes-Oxley Act of 2002 to oversee the auditors of public companies in order to protect investors and the public interest by promoting informative, fair, and independent audit reports.   • The Act required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated.  

  4. Overview of PCAOB • PCAOB Key Areas of Responsibility • Registration • Inspections • Enforcement • Standards • The SEC has oversight authority over the PCAOB, including the approval of the Board’s rules, standards, and budget  

  5. Standards-setting • The Sarbanes-Oxley Act gave the Board the authority to establish: • Auditing and related attestation standards • Quality control standards • Ethics standards • Independence standards • The Act specifically directed the Board to establish the following auditing standards: • Audit Documentation • Engagement Quality Review • Internal Control over Financial Reporting

  6. Reporting on Internal Control Over Financial Reporting • A significant factor in US audit requirements • A pervasive difference between audits conducted under the standards of the PCAOB and under audits conducted under the standards of the IAASB • Has improved audit quality and the reliability of financial reporting

  7. Excerpts from Statements on Benefits of Internal Control Reporting • [I]nvestors have greatly benefited from reporting about the effectiveness of ICFR and that such reporting … and the related requirement for an auditor’s attestation report has … enhanced the reliability of financial statements … (Deloitte & Touche) • We believe this heightened focus on the production of reliable financial reporting, predicated on effective internal control, is very positive … (PwC) • We strongly agree with the Board’s observations that auditing and reporting on ICFR has produced significant benefits and protections to investors … (Ernst & Young) • We believe that internal control pursuant to Section 404 has made … a significant contribution toward improving financial reporting, corporate governance and audit quality (KPMG)

  8. Standards of the PCAOB • Interim standards • Adopted by the Board in April 2003; standards remain in effect to the extent not superseded or amended by the Board • Auditing, attestation, quality control, ethics, and independence standards and related rules • PCAOB issued standards, rules, and guidance • Auditing standards No. 1 – 7 • PCAOB rules related to standards • Rule 3101 – Certain Terms Used in Auditing and Related Professional Practice Standards • Rules 3501 to 3526 – ethics and independence • Staff questions and answers • Staff audit practice alerts No. 1 – 4 • Staff guidance for auditors of smaller companies on AS No. 5

  9. Standards-setting Process • Internal coordination with Divisions of Inspections and Enforcement • PCAOB Standing Advisory Group • Work with other standards-setters and organizations, e.g., IAASB, IESBA • Development of a new auditing standard • Use International Standard on Auditing as a starting point • Explain areas of necessary departure (i.e., internal control) • Publicly issue analysis of significant differences between the Board’s standard(s) and IAASB and ASB standard(s)

  10. PCAOB November 17, 2009 Martin F. Baumann Chief Auditor, Office of the Chief Auditor

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