Business Law
PCAOB has resulted in greater independence of auditors of public companies
Yes, it is agreeable that PCAOB has provided the missing element which requires that an independent overview board be established to ensure performance of due diligence in public accounting inspects/audits of a corporation. It has been accepted that the SOX`s combination of improved audit committee responsibilities for oversight of audits, better communication between audit committees and auditors, and remediation and inspection from PCAOB have improved the independence and quality of the audits. PCAOB indeed changed the status quo and significantly enhanced the auditors’ independence, professional skepticism and objectivity in the context of the prevailing system (Carcello, Hollingsworth & Mastrolia, 2011).
Auditors independence serves the goals of fostering high quality audits by reduced the chances of external factors influencing the auditor`s judgment and promoting investors’ confidence in public companies` financial statement. The greater the assurances that the financial statements disclosed by the auditors are reliable, investors have high chances of investing and pricing is likely to be more efficient (Gunny & Zhang, 2013). Federal securities regulations contemplate that assurance will trickle down from the knowledge that financial information is subjected to thorough examination by objective and competent auditors.
Audit committees` oversight of performances has improved the auditor’s independence and objectivity. The limitations of non-audit services to clients have minimized the potential for auditor conflicts of interest. In addition, audit partner rotation has equally increased audit firm objectivity. Therefore, the creation of PCAOB has resulted in enhanced audit quality through both its standard setting efforts and inspection program.
Should not all PCAOB members be taken from the investment community?
Investors require the services of different professionals often, especially when the independence of the auditors has been called into question. The purpose of PCAOB is to oversee the public company audits in order to protect the interests of the auditors in addition to furthering public trust in the independently prepared public reports. It is the mission of the board to instill confidence in the financial reports and their work is critical not just for the auditing firms they serve but to other public companies.
The board members must be independent of the accounting field since the purpose of PCAOB is to oversee auditing and not investment matters. If the board members are selected form the investment community, it implies that they will be lacking the independence of performing their audit oversight jobs (Carmichael, 2004). It is therefore not recommended for the board members to be chosen from the investment community.
What regulatory compliance requirements apply to various business situations?
Regulatory compliance is a very critical factor in the strategic development of businesses. An understanding of the prevailing legislation and eventual compliance to the laid down procedures is important in helping enhance business continuity (Nawab, Ahmad & Shafi, 2011). There are two types of regulation which standards and requirements that should be attained in order to be accepted as a member of a given organization and the government regulations governing specific fields that should be adhered to in the given line of business (Moon, 2000). The regulations are established to safeguard the interests of the citizens while also creating national standards of uniformity. For instance, several different regulations exist in the Sarbanes-Oxley Act which requires that accounting and audit firms go through regular quality inspections.
In conclusion, the PCAOB functions to ensure that audit firms get the necessary authorization and supervision in their quest to offer audit services to public companies. The board works to safeguard the investor interests while also ensuring that fair and independent reports are made by the audit firms.
References
Carcello, J. V., Hollingsworth, C., & Mastrolia, S. A. (2011). The effect of PCAOB inspections
on Big 4 audit quality. Research in accounting regulation, 23(2), 85-96.
Carmichael, D. R. (2004). The PCAOB and the social responsibility of the independent
auditor. Accounting Horizons, 18(2), 127-133.
Gunny, K. A., & Zhang, T. C. (2013). PCAOB inspection reports and audit quality. Journal of
accounting and public policy, 32(2), 136-160.
Nawab, S., Ahmad, M. J., & Shafi, K. (2011). Interdisciplinary Journal of
Contemporary Research in Business. IJCRB, 110-127.
Moon, M. J. (2000). Organizational commitment revisited in new public management:
Motivation, organizational culture, sector, and managerial level. Public Performance & Management Review, 177-194.
