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    PCAOB Audit Regulation a Decade after SOX: Where It Stands...
    research summary posted April 1, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.06 Impact of PCAOB, 01.07 Impact of SEC Actions 
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    Title:
    PCAOB Audit Regulation a Decade after SOX: Where It Stands and What the Future Holds
    Practical Implications:

    The commentary provides an overview of activities that have occurred since the creation of the PCAOB. The article examines the PCAOB and guidance that has enhanced its ability to fulfill its duties over the past decade. The commentary provides information relevant to evaluating the effect that SOX, the Dodd-Frank Act, and the JOBS Act have had on the PCAOB in its relation to audit regulation. The commentary also provides information relevant to the future of the PCAOB and audit regulation.

    For more information on this study, please contact Zoe-Vonna Palmrose (zv.palmrose@marshall.usc.edu).

    Citation:

    Palmrose, Z.-V. 2013. PCAOB Audit Regulation a Decade after SOX: Where It Stands and What the Future Holds. Accounting Horizons 27 (4):775-798.

    Keywords:
    PCAOB, audit regulation, audit quality, SOX, cost benefit analysis
    Purpose of the Study:

    This study provides a commentary that assesses the status of the PCAOB in relation to audit regulation. The commentary discusses core auditing principals and how they will shape the standards that appear in the future. The author discusses activities performed in the ten years since Sarbanes-Oxley was implemented. The following guidance is considered as it relates to the PCAOB’s inspection process, standard-setting process, and enforcement activities:

    • The Sarbanes-Oxley Act of 2002
    • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
    • The 2012 Jumpstart Our Business Startups Act
    Design/Method/ Approach:

    The author uses personal experiences and observations from the field to provide evidence for the commentary. The commentary is based on ten years of information gathered from 2002, beginning with the implementation of Sarbanes-Oxley.

    Findings:
    • The author finds that much of the PCAOB’s first decade was spent implementing Sarbanes-Oxley. One crucial decision for the PCAOB was the 2010 Supreme Court decision, Free Enterprise Fund et al v. PCAOB (2010). SEC oversight allowed the PCAOB to stay intact. Until the decision, the Board found it hard to retain members in order to complete its duties.
    • The author observes that members that have been appointed to the board are influencing the Board’s decisions, but lack auditing experience.
    • The author finds that the non-voluntary nature of PCAOB funding is an added strength of the Board. The abundance of funds that the board secures allows it to perform and regulate many activities across a broad spectrum; however, the nature of its activities generates scrutiny of its spending.
    • The author finds that allowing the PCAOB to write its own auditing standards (rather than actively converging with or adopting international standards) adds value to the standard setting process. The author finds that the word “judgment” is being used less frequently in the new PCAOB auditing standards, and speculates about how the impact this choice has on audit quality.
    • The author finds that the PCAOB still experiences difficulties with its inspection of foreign audit firms. The Dodd-Frank Act helped by allowing the PCAOB to share some information with foreign regulating bodies. The PCAOB is still denied access to conduct inspections in certain countries.
    • The author finds that the PCAOB shifted its focus of the audits of internal controls from efficiency to effectiveness of the audits.
    • The author finds that the JOBS Act lessened the reporting requirements for smaller companies in response to financial reporting cost-benefit concerns.
    • The author finds that the implementation of cost-benefit analysis will be challenging for the PCAOB. The PCAOB will look to hire more economists to evaluate cost-benefit considerations related to its standards.
    • The author observes that the distance the PCAOB has placed between itself and those that it regulates has had a pervasive effect on regulation of public company auditing.
    Category:
    Standard Setting
    Sub-category:
    Impact of PCAOB, Impact of SEC Actions