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PCAOB . November 17, 2009 Martin F. Baumann Chief Auditor, Office of the Chief Auditor. Caveat. The views I express are my own and do not necessarily reflect the views of the Board, individual Board members, or other members of the Board’s staff. 2. Overview of PCAOB.

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PCAOB

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PCAOB

November 17, 2009

Martin F. Baumann

Chief Auditor, Office of the Chief Auditor


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Caveat

The views I express are my own and do not necessarily reflect the views of the Board, individual Board members, or other members of the Board’s staff.

2


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Overview of PCAOB

  • Created by the Sarbanes-Oxley Act of 2002 to oversee the auditors of public companies in order to protect investors and the public interest by promoting informative, fair, and independent audit reports.  

  • The Act required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated.  


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Overview of PCAOB

  • PCAOB Key Areas of Responsibility

    • Registration

    • Inspections

    • Enforcement

    • Standards

  • The SEC has oversight authority over the PCAOB, including the approval of the Board’s rules, standards, and budget  


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Standards-setting

  • The Sarbanes-Oxley Act gave the Board the authority to establish:

    • Auditing and related attestation standards

    • Quality control standards

    • Ethics standards

    • Independence standards

  • The Act specifically directed the Board to establish the following auditing standards:

    • Audit Documentation

    • Engagement Quality Review

    • Internal Control over Financial Reporting


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Reporting on Internal Control Over Financial Reporting

  • A significant factor in US audit requirements

  • A pervasive difference between audits conducted under the standards of the PCAOB and under audits conducted under the standards of the IAASB

  • Has improved audit quality and the reliability of financial reporting


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Excerpts from Statements on Benefits of Internal Control Reporting

  • [I]nvestors have greatly benefited from reporting about the effectiveness of ICFR and that such reporting … and the related requirement for an auditor’s attestation report has … enhanced the reliability of financial statements … (Deloitte & Touche)

  • We believe this heightened focus on the production of reliable financial reporting, predicated on effective internal control, is very positive … (PwC)

  • We strongly agree with the Board’s observations that auditing and reporting on ICFR has produced significant benefits and protections to investors … (Ernst & Young)

  • We believe that internal control pursuant to Section 404 has made … a significant contribution toward improving financial reporting, corporate governance and audit quality (KPMG)


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Standards of the PCAOB

  • Interim standards

    • Adopted by the Board in April 2003; standards remain in effect to the extent not superseded or amended by the Board

    • Auditing, attestation, quality control, ethics, and independence standards and related rules

  • PCAOB issued standards, rules, and guidance

    • Auditing standards No. 1 – 7

    • PCAOB rules related to standards

      • Rule 3101 – Certain Terms Used in Auditing and Related Professional Practice Standards

      • Rules 3501 to 3526 – ethics and independence

    • Staff questions and answers

    • Staff audit practice alerts No. 1 – 4

    • Staff guidance for auditors of smaller companies on AS No. 5


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Standards-setting Process

  • Internal coordination with Divisions of Inspections and Enforcement

  • PCAOB Standing Advisory Group

  • Work with other standards-setters and organizations, e.g., IAASB, IESBA

  • Development of a new auditing standard

    • Use International Standard on Auditing as a starting point

    • Explain areas of necessary departure (i.e., internal control)

    • Publicly issue analysis of significant differences between the Board’s standard(s) and IAASB and ASB standard(s)


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PCAOB

November 17, 2009

Martin F. Baumann

Chief Auditor, Office of the Chief Auditor


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