...Role and function of the PCAOB and AS 5 and AS 11 Ramecha Davis This paper is submitted in partial fulfillment of the requirements for Auditing BUS5423 Section 70 Texas Woman’s University Dr. John Nugent April 20, 2015 Abstract The purpose of this research paper is to provide an in depth review of the Public Company Accounting Oversight Board (PCAOB) and how it contributes to the interest of the Sarbanes Oxley Act of 2002. The research highlights the importance of the PCAOB’s role in the accounting profession as well as prospective changes that may evolve in the future related to PCAOB. Upon reading this research the reader will be familiar with PCAOB’s roles and functions, as well as auditing standards (AS) released such as AS5 and AS11. The PCAOB’s significance in the protection of investors is revealed as well. Keywords: SEC, PCAOB, SOX, AS 5, AS 11, Internal Control, Materiality Table of Contents Introduction……………………………………………………………………………………………….5 PCAOB…………….……………………………………..……………………………….……….……5-6 a) The PCAOB Mission, Vision, & Core Values………………………………….………........6-7 b) Current Standards…………………………………………………………….…..............…7-8 c) Future Standard Plans…………………………………………………………………….…8-9 Sarbanes Oxley Act of 2002 Section 404……………………………………………………………...….9 a) Auditing Standard 5…………………………………………………………………….….9-10 b) Auditing Standard 11……………………………………………………………………..10-12 c) Communication Requirements..............................
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...http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 203 III. Classroom Hints This case provides students with an opportunity to understand what is meant by quality control in the financial statement audit process and to understand why a quality control mechanism is an important internal control procedure for an audit firm. Further, the case provides a terrific example for students to see what can actually happen when quality control breaks down at an audit firm. In the case of Arthur Andersen, the breakdown in quality control ultimately led to the demise of the firm. To meet these objectives, this case illuminates the role of the professional standards group (PSG) at Arthur Andersen and the dialogue that occurred for several technical issues between Andersen’s PSG and the lead partner on the Enron engagement, David Duncan. We believe it is essential for students to carefully read over the recommended technical knowledge, along with this case reading. The educational psychology literature suggests that the acquisition of technical/factual type knowledge increases dramatically when such knowledge can be applied in a realistic context. Thus, we urge instructors to use this case as a mechanism to impart the relevant post-Sarbanes technical audit knowledge, outlined above. This case assignment will work best if...
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...Abstract This research paper explores the creation of the Sarbanes-Oxley Act (SOX) and the role Enron played in its enactment. Specifically, this paper will explore and discuss the Enron crisis, emphasizing the legal and ethical accounting breaches committed by the company. The purpose of SOX and the methods used to address those breaches. A discussion of the major provisions of the act including: (1) Establishment of the Oversight Board commonly referred to as the Public Company Accounting Oversight Board (PCAOB) (2) Restrictions on non-audit services (3) Rotation of audit partners (4) Auditor reports to audit committees (5) conflicts of interests (6) CEO and CFO certification of annual and quarterly reports and (7) Internal control report and auditor attestation. The necessary requirements concerning internal control for public companies. A discussion of the types of services considered unlawful if provided to a publicly held company by its auditor. A discussion of the broader impact of the act on auditors. Lastly, a discussion from the legal and ethical viewpoint of the level of success the act has had in preventing cases such as Enron. The Sarbanes-Oxley Act and Enron In any contemporary discussion of corporate governance and the erosion of trust in business, one name is unavoidable: Enron. Enron has become an icon for corporate fraud on a massive scale going to the top of the corporate hierarchy. In any attempt to restore trust, two points will have to be acknowledged...
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...Auditing Standards Accounting 491 November 16, 2015 Dwayne Thompson Auditing Standards The art of auditing has evolved over several decades. The use of technology has changed the procedure significantly. Along with the evolution of standards and procedure are necessary to ensure economic growth and financial stability. Before 2002, it seems as though auditing took a reactive approach to questionable circumstances and dealings. Today the powers in control are producing a proactive approach. That is to say, standards and regulations are set in place to ensure users of financial data are getting timely and accurate reports. Elements of Generally Accepted Auditing Standards Information and history regarding Generally Accepted Auditing Standards (GAAS) are set in place for auditing private companies. Like other auditing procedures, these same rules are used for publicly traded companies (Loughran, 2015). Before the process of audit begins, there are certain particulars that are examined to ensure creditability of the reports' outcome. Audits are relied upon heavily to encourage an upward moving economy. The elements involved are, general standards, standards of fieldwork and standards of reporting. General standards refer to the competency of the auditor, his or her independence and the due professional care that is rendered. Standards of fieldwork encompass how the auditor performs his or her work. This guidance entails the gathering and organization of data that will ensure...
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...Kirsten Hill ACCT 5557 April 11, 2015 (original) May 5, 2015 (revised) Independence Certified Public Accountants (CPA) perform many important services for individuals and companies, public or private. One essential assurance engagement a CPA performs is an audit of financial statements. Audits of financial statements play a vital role in the business industry. An auditor can reasonably assure investors, lenders, management, and stakeholders that the financial statements are free from material misstatement and accurately reflect the accounting of the entity for that period of time. However, an auditor cannot provide an absolute assurance due to the inherent limitations of an audit. Generally, an audit includes the following steps: overall audit planning, assess control risk, perform tests of controls, perform substantive tests of account balances, and finally complete the audit (Kerr, Elder and Arens). In the overall audit planning stage, the CPA has to obtain an understanding of the potential client’s business and establish if the CPA Firm and its associates are independent. These two steps must be done before the CPA Firm can decide to accept the audit engagement. There are many important factors, steps, issues, knowledge, just to name a few that go into an audit but this paper will focus on the issue of independence. One of the principles listed in the AICPA Professional Code of Conduct states that an auditor in public practice must be independent in appearance...
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...Comprehensive Case A.1 – Enron I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 201 Section 203 Section 204 Section 206 Section 301 Section 302 Section 305 Section 401 Title IX PCAOB Auditing Standard No. 5 Paragraph #2 Paragraph #9 Paragraph #11 Paragraph #21-22 Paragraph #25 Paragraph #28-30 Paragraph #69 Paragraph #A5 (in Appendix A) Paragraph #A8 (in Appendix A) III. Case Questions – Answer Key 1. Refer to the second general standard of Generally Accepted Auditing Standards (GAAS). What is auditor independence and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact? The second general standard of generally accepted auditing standards (GAAS) is, “In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.” If the auditor is not independent, the financial statements are considered unaudited...
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...company restated earnings for the previous five years and erased $600 million in profits. It turned out that the October report began to reveal Enron’s gross abuse of special-purpose entities (SPEs) and the mark-to-market accounting method. The company used SPEs to keep enormous amounts of losses off its books while inflating earnings from supply contracts by booking all profits from a contract in the quarter the deal was made. What also became clear was that Enron did not accomplish their gross manipulations without the help from their accountant’s at Arthur Andersen. Enron shareholders and executives were not the only groups negatively affected by Enron’s aggressive accounting practices. Arthur Andersen was also unraveled because of the role it played in Enron’s materially misstated financial statements. In a letter to Kenneth Lay (, Enron’s CEO before and after Jeffrey Skilling’s short term) shortly after Jeffrey Skilling resigned, Sherron Watkins, a VP at Enron, expressed her concern with the state of the company and expressed stated concerns about Enron’s accounting practices even though they were “blessed” by Arthur Andersen. Because of these “blessings” Arthur Andersen (AA) personnel was deemed to be...
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...I. Audit Quality The primary role of accounting is to reduce information asymmetry by providing investors with relevant and reliable information in order to create an efficient allocation of resources. However, there is often a tradeoff between relevance and reliability that needs to be considered when imposing regulations (Scott, 2012). When information asymmetry is present, investor faith decreases, compromising the efficiency of the market. In order to prevent market failures, it is critical to maintain investor confidence; this can be done by achieving high audit quality. Definition The PCAOB defines audit quality as providing “independent and reliable audits” regarding management’s financial statements, internal controls and potential threat for going concerns (PCAOB, 2013). Four key aspects of audit quality include independence, objectivity, skepticism, and competence. Maintaining and improving the four elements is critical to increasing audit quality and the usefulness of the information provided. Independence According to the PCAOB Auditing Standards, auditors should maintain independent mental attitudes. Independence is defined by the AICPA Code of Professional Conduct as independence of both, mind and appearance. Independence of mind requires the auditor to act with integrity, free of outside influence whereas independence of appearance requires the avoidance of situations leading to potential conflict of interests. Unless, the auditor is truly independent, the...
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...Sarbanes-Oxley Act of 2002 and the PCAOB Liberty University Abstract As a result of massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, President George W. Bush signed into legislation during 2002 the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing accounting standards that are used every day by auditors of public companies. This paper takes a look at the Sarbanes-Oxley Act of 2002 and its effect on internal controls and small businesses. Also, I will discuss the purpose and specific pronouncements related to accounting information systems and internal controls; as well as the impact of possible future pronouncements. Keywords: Sarbanes-Oxley, PCAOB, Accounting information systems The Sarbanes-Oxley Act and the PCAOB Massive accounting scandals in the United States between 2001 and 2002 involving notorious companies, such as Enron, Worldcom, Tyco, and various other recognized entities, led to the creation of the Sarbanes-Oxley Act of 2002. This historic piece of legislation has had a profound effect on the accounting profession since it was signed into law. As a result of the act, the PCAOB was created. Since its inception, the PCAOB has created some of the most importing...
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...Business/ Graduate Studies FIU Miami Gardens, FL Spring 2014 May 15, 2014 Table of Contents Issues……………………………………………………………….Page 3 Facts………………………………………………………………..Page 4-5 Analysis/ Authority………………………………………………...Page 5-9 Conclusions/ Recommendation…………………………………….Page 9 References………………………………………………………….Page 10 Issues PTL case Issue #1 Some of the ethical questions raised by the maintenance of PTL’s secret payroll account by the Laventhol partner are? Since the PTL was a private organization not registered with the Securities and Exchange Commission should this affect the propriety of the partner’s actions? PTL case Issue #2 PTL was a high risk client to Laventhol, what procedures should Laventhol done before accepting PTL as an audit client? PTL case Issue #3 What is the definition of the deep pocket theory? What step can large public accounting firms use to protect themselves against large class action lawsuits with predicated upon false or largely unfounded allegation? PTL case Issue #4 A. How does GAAS for PTL now differ from GAAS for a U.S.-based public company listed on a U.S. securities exchange? Explanation should include citations and examples. B. How does GAAP for PTL differ from GAAP applicable to U.S.-based public companies? Explanation should include citations and examples. PTL Issue #5 Assume PTL was required by the IRS to "spin off" its businesses amusement park, timeshare project, etc., how would GAAS and GAAP differ between the tax-exempt religious...
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...Accounting firm Barnes and Fischer Medium sized national CPA firm Partnership formed in 1954, with 6000 professionals on the payroll. Firm provides auditing and tax services, also builds information systems for the consulting side of business for non-audit clients, or clients who have not publicly traded. first assignment as an audit mangager is to assist an audit partner on a client acceptance decision. prospective client is OCEAN MANUFACTERING medium sized manufacturer of small home appliances. At a local chamber of commerce meeting, the president met the company’s president. The company decided to end its relationship with its current auditor because they want to build a relationship with a more nationally established CPA firm because the company want to make an initial public offering IPO of its common stock within the next few years. Ocean’s annual financial statements have been audited each of the past 12 years to comply with the debt covenants and to receive interest rate on the company’s existing line of credit. The December 31 fiscal year has passed so NOW it is the time for the company to contract with a new auditor to get the audit under way. Our partner Jane Hunter is intrigued with the idea of having a client in the home appliance industry. Especially oceans, because it has a favourable market position and growth potential!! Our company never had a client in this industry (small home appliances) before. Most of our audit clients are in the...
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...Oxley Acts of 2002 and the Creation of the PCAOB. Answer 3: In the mid 1990s America experienced a flourishing economy. The stock market rate rose at increasing rates. This motivated accounting firms to desire to expand their business. In the 2000s there was a bubble burst, stock prices plummeted as investors fled the market. IPOs also disappeared and this event led to the revelation other flaws in the market. It became apparent that the boom years had been accompanied by fraud. Corporations such as Enron, WorldCom, Tyco and Adelphia had a lot of misconduct in business principles. There was lack of fairness and integrity due to conflict of interest. Corporations focused on short-term goals. A lot of managers adjusted financial result to meet the projected results. Question 5: Compare and contrast management’s responsibility for the entity’s financial statements with the auditor’s responsibilities for detecting errors and fraud in the financial statements. Answer5: Managements are responsible for presenting fair financial statements in conformity with general accepted accounting principles and auditors are confined to express his or her opinion on the information provided. Auditors are responsible to check if managers are conforming to GAAP with no errors and materiality. Management and auditors both have to conform to GAAP. Question 9: What kind of organization is PCAOB, why was it formed, and what does it do? Answer 9: PCAOB is a quasi-governmental organization (government...
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...HERMOSILLA, VINCENT B. BSA-3 ACCTG 121C SYNTHESIS CASE 8.3 KANSAYAKU I. Summary This case focuses on Japan’s accounting profession and independent audit function. As this case documents, the accounting profession and independent audit function within the United States and Japan are very similar in many respects but very dissimilar in others. Similar to the United States, Japan’s accounting profession has historically been dominated by a small number of large accounting firms. In fact, each of Japan’s four largest accounting firms is affiliated with one of the Big Four accounting firms that are principally domiciled in the United States. The overall role and nature of the independent audit function in the two major industrialized countries are also very similar. One of the major differences between the accounting profession in Japan and the United States is the relatively small number of Japanese CPAs. On a per capita basis, the United States has more than ten times as many CPAs as Japan. Likewise, there is a large disparity in audit fees between the two countries. The annual audit fee for a U.S. company is typically ten times the size of the audit fee for a comparable Japanese company. Finally, the nature and structure of the regulatory function for the accounting profession and financial reporting system have historically been very different between the two countries. Similar to the United States, Japanese auditors have faced mounting criticism in recent years as a result...
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...2002 in the wake of corporation financial reporting scandals involving large publicly held companies. SOX instituted new strict financial regulations with the intent of improving accounting practices and protecting investors from corporate misconduct. SOX requires corporate executives to vouch for the accuracy of financial statements, and to institute and monitor effective internal controls over financial reporting. The cost of implementing an effective internal control structure are onerous, and SOX inflicts opportunity costs upon an enterprise as executives have become more risk adverse due to fears of incrimination. The Public Company Accounting Oversight Board (PCAOB) was created by SOX to oversee the accounting process and dictate independence requirements for auditors and auditing committees. The PCAOB proposed regulations must be approved by the SEC before they are enacted. Since the passage of SOX, the IT department has become critical in designing and implementing the internal controls in company accounting information systems. The Information Technology Governance Institute (ITGI) created a framework called Control Objectives for Information and Related Technology (COBIT) to provide guidance for companies to implement and monitor IT governance. Accounting Information Systems Research Paper The Sarbanes-Oxley Act of 2002 changed the landscape of corporate financial reporting and auditing. In the wake of corporate reporting scandals, Congress decided the accounting...
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...AUDITING AND THE PUBLIC ACCOUNTING PROFESSION AUDITING AND ASSURANCE SERVICES DEFINED Auditing plays a vital role in business, goverment, and our economy. As a vocation, auditing offers the opportunity for challenging and rewarding careers in public accounting, industry and goverment. Many auditors develop a client based with a concentration in one or more key industries. As a result of serving many client in similar industries, few individuals understand the key competitiveness factors for a business better than auditor. Individuals choosing an auditing in a public accounting firm have the opportunity to progress from a starting position of staff assisstant to senior auditor, to manager and then to partner. Regardless of their career path, most auditors are recognized for their expertise in evaluating organizational performance. AUDITING DEFINED The term auditing is used to describe a broad range of activities in our society. The Report of the Committee on Basic Auditing Concepts of the American Accounting Association defines auditing as : “a systematic process of objectively obtaining and evaluating evidence regarding assertion about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.” Several attributes of auditing contained in this definition merit special comment: 1. A systematic process connotes a logical, structured, and organized...
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