Auditing - Public Company Accounting Oversight Board

The PCAOB, established by the Sarbanes-Oxley Act of 2002, sets auditing standards and inspects accounting firms for publicly traded companies in the US. It consists of a five-member board appointed in partnership with the SEC. The PCAOB inspects large firms annually, while others are selected randomly or based on risk. Audits are evaluated for compliance with standards, and deficiencies are addressed with management. If unresolved, they appear in public inspection reports, which can lead to enforcement actions, including barring firms from public audits.

What act led to the creation of the PCAOB?

• Dodd-Frank Act

• Sarbanes-Oxley Act

• Securities Exchange Act

• Gramm-Leach-Bliley Act

Who appoints the members of the PCAOB?

• The President of the United States

• The SEC in consultation with the Federal Reserve and Treasury

• The Congress

• The Supreme Court

How often are large firms like the BIG4 inspected by the PCAOB?

• Every five years

• Randomly

• Annually

• Every two years

What happens if a firm does not resolve deficiencies found during a PCAOB audit?

• They are given a warning

• They are fined immediately

• They are automatically barred from auditing

• The deficiencies appear in a public inspection report

What could be a consequence of substantial deficiencies in a PCAOB inspection?

• A requirement to hire more auditors

• Being barred from auditing public companies

• A temporary suspension of the firm's license

• A reduction in audit fees