What is PCAOB – the U.S. audit watchdog and what are its roles?

The Public Company Accounting Oversight Board, abbreviated PCAOB, is a nonprofit corporation that oversees the audits of public companies. The U.S. audit watchdog is headquartered in Washington, D.C., U.S.

The PCAOB was formed by the Sarbanes–Oxley Act of 2002 to protect investors and the public interest by regulating informative, accurate, and independent audit reports.

The U.S. Securities and Exchange Commission (SEC) has authority over the PCAOB and supervises its Board’s rules, standards, and budget.

The responsibilities of the PCAOB:

The PCAOB registers public accounting firms that construct audit reports for issuers, and SEC-registered dealers and brokers.

It scrutinizes SEC-registered public accounting firms’ audits and quality control systems.

PCAOB builds or adopts standards of auditing, ethics, and quality control.

It takes appropriate measures if any registered public accounting firm or its affiliate violates some professional standards, specified laws, or rules.

The regulator also performs economic research and risk analysis and engages with domestic and international regulators and stakeholders.

The PCAOB team

The PCAOB Board consists of five members. They are elected by the SEC, after consultation with the Chair of the Board of Governors of the Federal Reserve System and the Secretary of the Treasury.

Erica Y. Williams, the current Chair of PCAOB was appointed by the SEC. Each of the board members, including the Chairperson, is appointed to staggered five-year terms.

The regulatory body has approx. 800 staff members and 15 other offices across the U.S.

Globally 1,709 public accounting firms, within 83 jurisdictions were registered with the PCAOB, as of December 31, 2021.

Annual Report and other Standards-Related Activities

As part of the role, the PCAOB submits an annual report to the SEC that includes audited financial statements. It is required by the Sarbanes-Oxley Act. 

PCAOB’s standard-setting activities are;

• Monitoring current or emerging audit issues
• Creating a research agenda
• Working on standard-setting projects.
• The implementation of its standards and rules by reaching out to stakeholders, publishing guidance, and other activities.

To develop a better quality of audit services, PCAOB requires SEC-registered public accounting firms to comply with all applicable auditing and related professional practice standards.

Closing…

On November 18, 2022, The Public Company Accounting Oversight Board issued for public comment a new Quality Control Standard. The public opinion shall be delivered by February 1, 2023, as instructed by the Board.

The Board believes that if it is adopted, would lead registered public accounting firms to improve their quality control (QC) systems significantly.

The Chair at PCAOB, Erica Y. Williams said that the quality control systems set the foundation for how firms perform their audits, hence to protect investors they have to make sure that the systems are effective in the current economic scenario.