Who can do a PCAOB audit?
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Under a Creative Commons license Open access AbstractDespite the importance of registration with the PCAOB, there is surprisingly little academic research on the registration process and its impact on audit outcomes (Abernathy et al., 2013). The PCAOB allows registration of audit firms from non-US countries. However, China and a few other countries do not allow the PCAOB to conduct inspections of audit firms. We take advantage of this setting to investigate whether PCAOB-registered audit firms improve audit quality in the absence of inspections and whether they charge an audit fee premium. Our findings indicate that audit quality increases following PCAOB registration and that clients pay higher audit fees for audits by PCAOB-registered firms. KeywordsPCAOB registration PCAOB inspection Audit quality Audit fees Cited by (0)© 2022 The Author(s). Published by Elsevier Inc. Aug. 12, 2022 Today, the Commission approved the Public Company Accounting Oversight Board’s (PCAOB) updated standards for audits that involve multiple auditing firms. I was pleased to support the amended standards because they will strengthen the requirements for lead auditors who supervise other auditors in an audit, helping to enhance audit quality and protect investors. Over the years, the growing complexity and international operations of public companies has led auditors increasingly to rely on other auditors — working across different firms, countries, and even languages — in completing an audit. Last year, for example, 26 percent of all issuer audit engagements used multiple auditors, and more than half of large accelerated filer audits used multiple auditors.[1] Given the challenges that such multi-firm audits present, it is important that there be robust standards for how lead auditors supervise, communicate with, and coordinate with other auditors on the audit engagement. The PCAOB’s updated standards make enhancements across two broad areas.[2] First, the amended standards specify certain procedures for lead auditors to perform when supervising other auditors. Second, they require lead auditors to prioritize their supervisory activities around higher-risk areas in the audit. I thank the PCAOB for their work to update this auditing standard, the first adopted since the Board was newly constituted. I look forward to the additional standard-setting work the PCAOB will undertake to live up to its founding vision under the Sarbanes-Oxley Act. If Sarbanes-Oxley, signed into law 20 years ago, meets its full potential, trust in our markets can grow — and that benefits investors and issuers alike. On June 21, 2022, the Public Company Accounting Oversight Board (PCAOB) adopted amendments to its auditing standards that apply to audits involving multiple audit firms. The amendments, which include changes to existing standards and adoption of a new standard, aim to improve the quality of audits where other accounting firms or individual accountants outside the accounting firm that issues the auditor’s report (the “lead auditor”) perform important work on the audit. “Today, after an extensive process of analysis and public input regarding the lead auditor’s use of other auditors, the Board is taking action to improve audit quality and strengthen investor protection,” said PCAOB Chair Erica Y. Williams. “These amendments will require audit firms to ensure that lead auditors sufficiently plan, supervise, and evaluate the work of other auditors.” The PCAOB noted that working with other auditors can create challenges in coordination and communication. These challenges can lead to misunderstandings about the nature, timing, and extent of the other auditors’ work and can reduce audit quality. To address such situations, the amendments improve PCAOB standards principally by:
The Board adopted the following amendments: AS 1206, Dividing Responsibility for the Audit with Another Accounting Firm, was adopted. The following standards were revised:
AS 1205, Part of the Audit Performed by Other Independent Auditors, and AI 10 (Interpretations of AS 1205) were rescinded. The amendments came after three public comment solicitations. “We look forward to monitoring the implementation and impact of these improvements to our standards as we evaluate whether our objectives in this area are fulfilled,” Chair Williams said. The amendments apply to all audits conducted under PCAOB standards. Subject to approval by the Securities and Exchange Commission, the amendments will take effect for audits of financial statements for fiscal years ending on or after December 15, 2024. Keep Reading on CCH® Accounting Research ManagerNot a subscriber? Sign up for a Free TrialWho does PCAOB audit?The Public Company Accounting Oversight Board oversees the audits of public companies and SEC-registered brokers and dealers.
Is PCAOB only for public companies?Firms that audit public companies, brokers, and dealers must register with the PCAOB.
What are PCAOB requirements?The PCAOB is required to establish or adopt, or both, auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for public companies, in accordance with Section 103 of the Sarbanes-Oxley Act of 2002.
Who has to register with the PCAOB?The Sarbanes-Oxley Act requires public accounting firms to register with the PCAOB to prepare or issue an audit report for a U.S. public company or a broker-dealer, or to play a substantial role in those audits.
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