PCAOB

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PCAOB

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

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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
  Boards staff.

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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.  

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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 Boards rules,
  standards, and budget  

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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

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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

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Excerpts from Statements on Benefits of Internal
Control Reporting

• Investors have greatly benefited from reporting
  about the effectiveness of ICFR and that such
  reporting and the related requirement for an
  auditors 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 Boards 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)

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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

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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 Boards standard(s) and
  IAASB and ASB standard(s)

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PCAOB

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