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Public Company Accounting Oversight Board; Will it Protect Investors?
The Public Company Accounting Oversight Board (PCAOB) was created by
Sarbanes-Oxley Act of 2002. This board was created to oversee the audit of public
companies, subject to the securities laws, in order to protect the interests of investors (15
USC 7201, 2002). It was created in wake of the recent financial scandals of Enron,
WorldCom, and Global Crossing to name a few. This Act established by Congress is to
create an oversight board, so that such scandals will never occur again. Will this oversight
board work and will its work restore public confidence and encourage individuals to invest
in the stock market again?
The PCAOB is not a tax-payer funded agency. It is supported by over 8800 companies and
mutual funds that benefit from independent audits (Epstein). The PCAOB principle duties
are;
1. Register public accounting firms that prepare audits.
2. Establish and/or adopt standards relating to the preparation of audit reports for issuers.
3. Conduct inspections of registered public accounting firms.
4. Conduct investigations and disciplinary proceedings.
5. Promote high professional standards and improve the quality of audit services offered
by registered public accounting firms.
6. Enforce compliance with the Sarbanes-Oxley act (15 USC 7201, 2002).
Before the establishment of Sarbanes-Oxley and the PCAOB, there was no oversight
board. Public accounting firms would perform peer reviews to verify that audits were
being performed with due diligence. However, these reviews were not high priority,
thusuncovering errors/negligence made by the public accounting firms by peers were
rarely discovered. It was only after the massive failures of Enron and WorldCom that this
