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    Reflections on the Establishment of the PCAOB and Its Audit...
    research summary posted July 21, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB 
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    Title:
    Reflections on the Establishment of the PCAOB and Its Audit Standard-Setting Role.
    Practical Implications:

    The divergence in the importance of the long-term reputation of the firm versus the short-term incentives for partners should be factored into future research. Returning to the role of auditing academics and educators, the big topics and the related accounting and auditing scandals should be incorporated into the basic auditing course to a much greater extent. Several good books on contemporary cases facilitate this. Also, coverage of legal liability should include the litigation process.  Auditing academics and educators can significantly enhance future auditing standards with their research and can mold students into future lead partners who understand there is no place in the world for auditors if their reports are not respected as reliable.

    Citation:

    Carmichael, D. R. 2014. Reflections on the Establishment of the PCAOB and Its Audit Standard-Setting Role. Accounting Horizons 28(4): 901-915.

    Keywords:
    auditing standards, PCAOB
    Purpose of the Study:

    This paper is an essay on the causes of the establishment of the PCAOB as the U.S. regulator of auditors of the financial statements of public companies, and the key developments in its role as a professional standard setter.

    Design/Method/ Approach:

    The author, a standard setter, educator and litigation consultant shares his perspective of the PCAOB. He spent nearly 14 years working at the AICPA on the establishment of public standards and was named the first Chief Auditor of the Public Company Accounting Oversight Board (PCAOB).

    Findings:

    Looking at the events and circumstances that led to the creation of the PCAOB, including particularly the outsized influence of accounting and auditing scandals, a few big topics stand out with regards to the need for research:

    • Fraud detection- How can standards and practice be changed to make auditors more effective at detecting material misstatements due to fraud? Why have auditors failed to detect major frauds? What changes are necessary in firm methodologies and reward systems for lead partners and the engagement team?
    • Independence, Objectivity, and Integrity- How can standards and practice be changed to make the primary focus of the lead partner and the engagement team be protecting investors? Professional skepticism is an important subset of this topic. What is necessary to make the construct that the auditor’s primary allegiance is to the investing public a reality?
    • Liability- How has it affected auditing standards and practice? Concerns about legal liability have had a significant behind-the-scenes effect on auditing standards and practice. Yet there is relatively little effort to understand this influence. Legal liability is viewed as a threat and negative consequence rather than one of the necessary mechanisms of accountability.
    Category:
    Standard Setting
    Sub-category:
    Impact of PCAOB