Session 3B Quality Assurance and Building Effective Oversight System - Bruce Overton


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Session 3B Quality Assurance and Building Effective Oversight System - Bruce Overton

  1. 1. CReCER Meeting Managua 2012 Bruce Overton, Assistant Director Office of International Affairs
  2. 2. DisclaimerThe views I express today are mine anddo not necessarily reflect the views of theBoard, individual Board members, orother members of the Board’s staff. 2
  3. 3. Public Company Accounting Oversight Board Regulator of auditors of companies to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports  Auditors of companies publicly traded in the United States  Auditors of nonpublic broker-dealers Created under the Sarbanes-Oxley Act of 2002 to be independent from the accounting profession  Reflects view by U.S. Congress that peer review was not effective  Board members  Funding 3
  4. 4. Key Structural Decisions in Establishing the PCAOB Independent funding mechanism Independent board members Experienced, expert, seasoned staff Independent enforcement and discipline Independent standard setting Publish individual inspection reports 4
  5. 5. Funding The largest source of funding for the PCAOB comes from the companies whose financial statements must be audited by PCAOB-registered firms Additional funding comes from brokers and dealers A small amount of funding comes from registration fees The U.S. Securities and Exchange Commission (SEC) approves PCAOB’s annual budget 5
  6. 6. SEC Oversight Analogy to SEC oversight of self regulatory organizations Appointment of Board members Approval of rules and standards Appeal of Board sanctions Appeal of Board inspection reports Appeal of denial of registration Approval of budget and accounting support fees Oversight of Board processes 6
  7. 7. PCAOB’S Principal Statutory Functions Registration Standard-Setting Inspections Investigations & Enforcement 7
  8. 8. Registration Registration is voluntary, but only firms that are registered with the PCAOB may conduct audits, or play a substantial role in audits, of:  Public companies that trade in U.S. markets  Public or nonpublic broker-dealers Registration subjects firms to PCAOB oversight Currently, approximately 2,400 audit firms (U.S. and non-U.S.) are registered with the PCAOB Of those, approximately 900 are non-U.S. firms from 88 jurisdictions 8
  9. 9. Current PCAOB Statistics 2,375 firms registered with the PCAOB, of which 913 non-U.S. firms are registered with the PCAOB from 88 jurisdictions Almost 40% of all firms registered with the PCAOB are located outside the U.S. Approximately 25% of all registered non-U.S. firms have at least one issuer client and must be inspected at least every 3 years 9
  10. 10. Standard-Setting Previously controlled by the profession through AICPA’s Auditing Standards Board (ASB) Now exclusive authority of PCAOB (subject to SEC approval)  GAAS reference changed to “PCAOB standards”  Includes auditing, quality control, ethics, independence, and attestation standards  Excludes accounting standards  Adoption of AS 5 and other major standards 10
  11. 11. Inspections The Sarbanes-Oxley Act directs the Board to conduct a continuing program of inspections Inspections assess the compliance of the firm and its associated persons with the Act, the Rules of the Board and the SEC and U.S. professional standards Information obtained in inspections is confidential and protected from discovery in legal proceedings pursuant to Section 105(b)(5) of the Act 11
  12. 12. Inspection Reports Inspection reports contain both public and nonpublic portions  Inspection reports do not identify an issuer by name  The public portion of an inspection report summarizes significant engagement deficiencies, if any, and is posted on the PCAOB’s web site  The nonpublic portion of a report may describe additional detail or discuss other issues, including any quality control criticisms or potential defects identified in the inspection 12
  13. 13. Enforcement and Investigations Separate process from Inspections  Separate division  Different staff Board may investigate possible violations by registered public accounting firms or associated persons Prompted by inspections, referrals from other regulatory agencies, public announcements or filings and tips Anonymous tip hotline (telephone and email) Sanctions can be appealed to the SEC and then to the federal courts; if appealed to SEC, sanctions do not take effect and are not made public by the Board unless SEC orders that sanctions take effect 13
  14. 14. Enforcement and Investigations Range of possible sanctions  Suspend or permanently revoke a firm’s registration  Suspend or permanently bar an individual from association with a registered public accounting firm  Temporarily or permanently limit the activities, functions or operations of a firm or associated person  Civil monetary penalty  Impose a censure, require additional professional education or training, or impose any other sanction provided in the rules of the Board 14
  15. 15. Global Developments in Independent Auditor Oversight EU Directive on Statutory Audit  European countries obligated under Directive:*  France - High Council for Statutory Auditors  Finland – Auditing Board of the Central Chamber of Commerce  Germany - Auditor Oversight Commission  The Netherlands - Authority for the Financial Markets  Norway - Financial Supervisory Authority  Spain – Accounting & Auditing Institute  Sweden - Supervisory Board of Public Accountants  UK – Federal Reporting Council * This list is not exhaustive 15
  16. 16. Global Developments in Independent Auditor Oversight Other countries:  Australian Securities and Investments Commission  Canadian Public Accountability Board  Japan Certified Public Accountants and Auditing Oversight Board  Korea Financial Supervisory Service  Malaysian Accounting Oversight Board  Singapore Accounting and Corporate Regulatory Authority  South Africa Independent Regulatory Board for Auditors  Switzerland Federal Audit Oversight Authority 16
  17. 17. Global Developments in Independent Auditor Oversight International Forum of Independent Audit Regulators  Organization of independent auditor oversight entities  Established in September 2006  Membership criteria:  Independent of auditing profession (governing body and funding)  Acts in the public interest and, in particular, conducts or oversees inspections program  Purpose is to bring auditor oversight entities together to share information and exchange ideas  Currently 44 member countries 17