Essay on PCAOB: Regulating Independent Audits in the US Since 2002

The (PCAOB) was set up in 2002 under the Sarbanes Oxley Act. In this case, it is an independent nonprofit corporation which was put in place with the task of overseeing the activities of the audits undertaken by issuers, broker-dealers, as well as the audit companies in the United States. Before the PCAOB was set up, the auditors in the country operated under their regulations, they were self-regulated, and their activities had no interferences from other external jurisdictions with the interest of establishing the validity and acceptability of their activities. There are thus several reasons as to why then PCAOB was set up, which would act to replace the traditional way in which the accounting and auditing firms were self-regulated, hence a change in the accounting profession. They are as brought out in the subsequent paragraphs.

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First, the Public Company Accounting Oversight Board was set up to regulate the activities of all the entities tasked with auditing the public companies in the United States of America. It thus takes part in the registration of all the audit entities to ascertain their preparedness and up to the task inclination in ensuring that they take part in the actual auditing and preparation of the audit reports of the public companies. In this regard, before the registration of the auditing firms and entities, there is the following of the procedure whereby their validity and composition meets all the requirements that the auditors are supposed to have to be allowed to undertake the auditing activities of the stated firms in the period interval determined. Hence, the compliance of the auditors to be registered is assessed to ensure that they are in line with the federal and regional standards put in place to govern their activities (AICPA, 2018). It is shown by various documentation that they bear and which shows that they have been allowed to pursue their auditing activities based on their full compliance of the federal rules, standards, and regulations in place. In this regard, the auditing entities will then be registered by the PCAOB as comprehensive practitioners of their profession, which they will have the go-ahead to pursue on their client companies as per their arrangements. It can thus be observed that the auditing firms which take place in the audit activities henceforth have been verified as legally taking part in the auditing activities by the regulations in place. The verification of the auditing firms in the United States could not be well established before the inception of PCAOB into the field, hence bringing about some aspects of the existence of audit firms which can have insufficiency of the required accounting and auditing skills to carry on the auditing activities.

Additionally, the change of the oversight of all the accounting and auditing entities to include one body which is the Public Company Accounting and Oversight Board (PCAOB) was caused by the need to regularly inspect the auditing firms in place. Before the introduction of PCAOB, the auditing firms were left to operate under their own rules and regulations, which in turn brought about the lack of an outside independent body like PCAOB to ascertain that the auditing firms follow and still adhere to any rules and regulations put in place to entirely govern their profession hence bringing about quality work in the end. Therefore, PCAOB was brought in to carry out a regular spot check of the auditing firms to make sure that their modes of operations are accepted by law. Among the inspected components in the case of the auditing firms are the composition of their firms. The law requires that they have some registered certified public accountants in place to aid in proper firms' auditing which primarily involves the accounting of the financial welfare, spending, and operations of the firm (AICPA, 2018). Additionally, the audit entities are inspected to ensure that they are still operating as per the auditing rules and regulations set by PCAOB, and federal governments, that provides effective operations are in place for quality assurance on the side of the firms that are being audited for their financial performances and welfare to be established in the long run.

There was also the necessity to set up the PCAOB to carry out the activities of setting the standards that were then to be followed by the auditing firms and entities. In this case, there had been the cases where some auditing forms, as were self-regulated, could breach some contracts and take part in some activities at their whims (AICPA, 2018). It could also engage in some corrupt vices with the companies being audited to present some untrue financial information as the face of the concern, with the ultimate aim of diverting the views of the investors and the public to a semblance of greatness and incomparable prosperity on the side of the public as well as the competitors. Thus, the standards being set by the PCAOB to be dully followed by all the auditing firms were meant to instill professionalism on the side of the auditors and issuers preparing audit reports. PCAOB ensues that having followed all the required set standards, all the auditors and issuers will then be able to prepare informative and accurate auditing reports quite independently, which works well to the benefit of the investors, the potential investors, as well as the public in general.

Finally, the PCAOB was set up to carry out the activity of enforcing the set rules, regulations, and standards on the auditors for proper actions on their businesses. In this case, having set the rules which need to be correctly followed and adhered to by the registered auditors and issuers, there is supposed to be the situation where such set standards and regulations of professionalism are optimally adhered to. It brings the maximum output of audit activities, which serves the investors, the public, and the companies being audited to the best of their interest. Thus, the rules and regulations which dictate the accepted standards of auditing are enforced on the auditors and issuers, where the ones who fail to follow them are punished through fining and other legal actions being wedged on them. Such punishments can include the fines of $100,000 for individual auditors and a fine of $200,000 for the companies engaged in the auditing activities (Gunny & Zhang, 2013). Hence, there shall be the maintenance of professionalism in the auditing and accounting field. It is a step which will also help in ensuring that the auditing entities perform their tasks as required in their area for proper services to be delivered to their clients.

(b) What impact the change has or would have on the business community as a whole and the accounting profession specifically.

Following the inception of PCAOB into the auditing and accounting profession, there are many changes that it has brought about in the long run. Such changes have been witnessed in the business community and the accounting profession in general. It can be observed that PCAOB is responsible for the oversight of all the auditing works of the issuers and audit entities. Hence, the fact that they have been subjected to the oversight activities dictates a lot of improvements to the provisions of the auditing services to clients as well as the provision of the required information in more accurate and informative ways to the concerned stakeholders. Below are the changes which have been witnessed in the business community alongside the accounting profession.

First, there has been the streamlining of the activities of the auditors. In this regard, all the auditors in the United States of American have been subjected to an independent, private sector body which oversees their auditing activities. Public Company Accounting Oversight Board has been able to ensure that all the auditors are registered under it. It can, therefore, be established that following the registration of all the auditors, there is the ensuring of the adherence to quality standards by the auditors before being permitted to practice the auditing of the public companies in the United States of America (Lohlein, 2016). The fact that certified auditors can operate signifies an excellent opportunity for the business community involving the public companies that are being subjected to audits after a given period. They can get audited professionally, and any adverse activities that could have been brought about by auditors who have not been certified are offset in the process. The auditing reports being submitted by auditors and issuers for the public access as well as for the use by the investors are free of any distortion such that they present the real face value of the concerns. The availability of accurate and filtered information is facilitated by the adherence to strict standards set by PCAOB for all the auditing and accounting professionals. It can, therefore, be seen that the auditors can produce the require auditing reports to the concerned stakeholders basing on the set standards put in place by the change of the subject of submission to PCAOB.

Additionally, the change of the oversight of the auditing and accounting to include the PCAOB brought sanity in the accounting and auditing fields. It can be observed that for any practicing entity to be registered, there are specific requirements which they have to meet to be permitted to proceed with the work. In this case, before the introduction of PCAOB to oversee the auditing activities of the auditors, their auditors were self-regulated. In such instances, the self-regulation of the auditors could pave the way for any malpractices to be injected into the auditing since there was no severe external and independent body to govern them. Also, some fraud auditors could take advantage of the situation and practice auditing, which in the process deliver their services to the unsuspecting clients yet they have no any professional qualification or rather the legal capacities to operate. Hence, the services offered to the clients in such instances could not be relied upon (Lohlein, 2016). The situation has been offset by the inception of PCAOB which ensures that all the operating auditors are dully registered, submissive to the set operational standards and are legally acceptable to operate, through the process of regular inspection into the nature of their activities.

For the case of the general public, the existing investors and the potential investors there has been the assurance of the quality of information regarding the audit reports conducted on the public companies that they have interest in. In this regard, the introduction of PCAOB to oversee all the audits of audit firms and issuers makes the them to adhere to all the requirements of the profession where they will then present accurate, informative, as well as independent audit reports to the concerned and involved stakeholders, that they can then use in making the right and precise decisions. Thus, the provisions of unreliable information by the auditors have been phased out by the active involvement of PCAOB in their activities. It is because the auditors in those periods PCAOB had not been introduced could engage in activities aimed at presenting inaccurate audit information to the public and the investors as influenced by the companies being audited to give exaggerated financial statements and operations of the company to the public.

Conclusion

The business communities which involve the public companies being audited have also managed to raise their operational standards. In this case, following their knowledge of strict auditing by the auditors, they have put in place strategies to ensure that their modes of operation are aimed at satisfying all the concerned stakeholders and at the same tie focused on the attainment of their obj...