Descriptions of auditing procedures in CPA review material exist for important reasons, not simply because of the intense testing about audit rules on the CPA exam. Auditors are expected to follow specific standards to assure investor confidence and smoothly functioning capital markets. In addition, failing to comply with appropriate auditing methods can land a CPA in trouble. The Public Company Accounting Oversight Board is currently pursuing disciplinary actions against nineteen audit firms and individual auditors.
The PCAOB was created under the Sarbanes-Oxley Act. This regulatory body was given authority to review audits and dispense penalties to violators of the audit rules accountants initially learn in CPA preparation courses. The PCAOB has revealed settlement of forty-eight disciplinary orders and resolution of seven other cases by trial. Disclosure of specific details surrounding PCAOB enforcement is prohibited by privacy mandates.
Although targets of these measures and the actions taken remain confidential under the law, the PCAOB has implored Congress to make its proceedings public. Legislation is pending on this matter. According to the PCAOB, secrecy has inspired audit firms to achieve delays in public disclosure of specific PCAOB allegations by litigating the charges.
However, the PCAOB has provided examples of infractions against the auditing standards covered in CPA study materials. Although any violation may draw PCAOB scrutiny, special attention is given to instances of serious audit failure, multiple audit failures, fraud, and other types of intentional misconduct. Also noted by the PCAOB was non-cooperation by audit firms with regulatory investigations. The board has faced difficulty with inspecting foreign firms, who cite sovereignty concerns and conflicts with statutes in their home countries.
In a separate matter, the PCAOB is considering de-listing some firms from its registration roles. These are audit firms that operate outside the scope of PCAOB authority. Although accountants are always required to meet the audit standards described in courses for CPA study, some of the firms do not conduct audits of public companies. They registered with the PCAOB simply to have permission for auditing public companies as well as broker-dealers. Activities of the firms are not subjected to PCAOB oversight by the mere act of registration. Only particular audits of public companies or broker-dealers are examined.
Companies that issue public securities in the US – including organizations headquartered overseas – must have audited financial statements. Although audits follow rules learned by US accountants in study for CPA licensing, firms located in both the US and foreign countries have registered with the PCAOB. The PCAOB is considering ways of deregistering some of the 345 US firms and 525 foreign firms that are not auditing public companies or broker-dealers.
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