Case Study 2: A Practical Guide to the New PCAOB Reporting Requirements                                  Lee Ann Perry-Jam...
A Practical Guide to the New PCAOB Reporting Requirements       The Sarbanes-Oxley Act of 2002 (SOX) requires that any acc...
A Practical Guide to the New PCAOB Reporting Requirementsexternal resources on which the firm draws in performing audits, ...
A Practical Guide to the New PCAOB Reporting RequirementsThe brain storming sessions can reveal what is talked about but a...
A Practical Guide to the New PCAOB Reporting Requirements         interpret federal securities laws;         issue new r...
A Practical Guide to the New PCAOB Reporting Requirements("Public Company Accounting," 2010)       The PCAOB is designed t...
A Practical Guide to the New PCAOB Reporting Requirements                                          ReferencesBylaws and ru...
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Assignment 2

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Assignment 2

  1. 1. Case Study 2: A Practical Guide to the New PCAOB Reporting Requirements Lee Ann Perry-James A Practical Guide to the New PCAOB Reporting Requirements January 29, 2012 Professor Dr. Jack McCaffery ACC 571 Forensic Accounting
  2. 2. A Practical Guide to the New PCAOB Reporting Requirements The Sarbanes-Oxley Act of 2002 (SOX) requires that any accounting firm that preparesor issues an audit report with respect to a U.S. public company must register with the PublicCompany Accounting Oversight Board (PCAOB). Effective December 31, 2009, accountingfirms registered with the PCAOB are required to file annual and current reports with thePCAOB. ("Bylaws and rules," 2011)2. Justify how the reporting requirements of the PCAOB reduce the chance of financialfraud. PCAOB reduces the chances of financial fraud by requiring all audit firms to 1) to keepthe PCAOB up-to-date on a firms basic professional information, such as name, location,licenses, and contact information; 2) to provide the PCAOB with current information regarding afirms audit practice in order to facilitate analysis and inspection by the PCAOB and keep thepublic informed of such information; and 3) to alert the PCAOB of any events that would requiremore immediate action by the PCAOB in terms of inspections or enforcement and that mightotherwise warrant public disclosure per of SOX section 102(d), (Michael, 2005) The collection of current data is an attempt to confirm auditors are remaining unbiasedand at arms length in their findings of their clients financial records and to make public theauditors information to investors. This submission is completely based on honesty of thesubmitter of forms 1,2 and 3 until such forms are investigated by PCAOB. Form 1 is required before an accounting firm is allowed to attest to financial statements.An annual report, Form 2, is to provide a profile of the firm at a point in time based on itsactivity related to issuers over the most recent 12-month period. Form 2 requires a firm toprovide, among other things, information about its public issuer-related practice, internal and 2
  3. 3. A Practical Guide to the New PCAOB Reporting Requirementsexternal resources on which the firm draws in performing audits, disciplinary histories of newpersonnel, certain new relationships and acquisitions, information about fees billed to issueraudit clients for various categories of services, and an affirmation of its statutory obligations tocooperate with the PCAOB. (Michael, 2005) In addition to the annual and current reportsrequired on an ongoing basis, Form 3 is required for all material changes in the firms disclosuresthat had occurred since such firms initial registration with Form 1. ("Public CompanyAccounting," 2010) This attempt to gather current information offers the believe that the data is 1) accurate,2) exposes possible lack of integrity of the auditors or their firm. PCAOB can investigate anyfirm at any time. If inaccuracies are found in the reporting forms, the PCAOB can bringdisciplinary actions against the firm and to the person submitting the form in the manner of fines,removal of application to PCAOB or criminal actions. It is wise for a firm or person submitting aform to report accurately but in the event an error occurs, they submit an addendum to the formimmediately. ("Public Company Accounting," 2010)3. Illustrate the responsibilities of an auditing firm to detect fraud during the audit process. SAS no. 99 requires the auditors and their firm to consider other information that may behelpful in identifying the risks of material misstatement due to fraud.  The engagement team’s brainstorming session.  Client acceptance and continuance procedures.  Reviews of interim financial information.  Consideration of inherent risks at the account or transaction level.(Ramos, 2003) 3
  4. 4. A Practical Guide to the New PCAOB Reporting RequirementsThe brain storming sessions can reveal what is talked about but also what is not talked about.The omission of information is just as important and needs to be questioned. If a client does nothave acceptable procedures and are not open to developing appropriate procedures then risk isapparent and needs to be investigated to reveal any misstatement of an account or journal entries. In those instances where the misstatement is or may be the result of fraud, and the effecteither is material or cannot be determined, the following steps are required:  Attempt to obtain additional evidence.  Consider the implications for other aspects of the audit.  Discuss the matter and the approach for further investigation with an appropriate level of management that is at least one level above those involved and with senior management and the audit committee.  If appropriate, suggest the client consult with legal counsel.(Ramos, 2003)SAS no. 99 provides guidance on the auditor’s course of action when the risk of materialmisstatement due to fraud is such that he or she is considering withdrawing from theengagement.4. Recommend alternatives to the PCAOB. The SEC was established to perform two broad functions: protect investors and promotestability in the financial markets by enforcing securities laws enacted by Congress. The functionsof the SEC are broken down into numerous departments. The main departments are CorporateFinance, which oversees the accuracy of public corporations financial disclosures; InvestmentManagement, which supervises investment companies and investment advisors; MarketRegulation, which creates regulatory policy; and Enforcement, which prosecutes violators offederal securities law. It is the responsibility of the Commission to: 4
  5. 5. A Practical Guide to the New PCAOB Reporting Requirements  interpret federal securities laws;  issue new rules and amend existing rules;  oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies;  oversee private regulatory organizations in the securities, accounting, and auditing fields; and  coordinate U.S. securities regulation with federal, state, and foreign authorities. (Unknown, 2011) Had the SEC performed its tasks regularly and timely then PCAOB would not benecessary. PCAOB charges large fees for their services but very little return is published to thevery shareholders they are to protect. I recommend an overhaul of the SEC to perform the tasksthe agency was initially designed to uphold. 5. Prepare a sample timeline for PCAOB reporting. Form 1 Submit application on line 24 hours for review Acceptance of Form 1 Pay fees Board reviews for 45 days Acceptance of Form 1 Board request additional information or issuance hearing notice Board reviews for additional 45 days Form 2 Annual Period covers April 1 to March 31 Due by June 30 Form 3 30 days after special event Reg. before 12/21/09 "bring current" event by 2/1/10 Reg. after 12/31/09 30 days after special event Form 4 14 days after the change or combination 5
  6. 6. A Practical Guide to the New PCAOB Reporting Requirements("Public Company Accounting," 2010) The PCAOB is designed to help investors feel better so they will continue investing inthe stock market just like the SEC Act of 1934. The main purposes of these laws can be reducedto two common-sense notions:  Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing.  People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors interests first. The SEC is the over PCAOB including the approval of the Board’s rules, standards, andbudget. The PCAOB.org site does offer inspection reports of auditors and firms but claims"PORTIONS OF THE COMPLETE REPORT ARE OMITTED FROM THISDOCUMENT IN ORDER TO COMPLY WITH SECTIONS 104(g)(2) AND 105(b)(5)(A)OF THE SARBANES-OXLEY ACT OF 2002" (Unknown 2010) on each of the investigationreports that I reviewed. What is the real purpose of this agency? I do not see how it is providingvaluable information to the investors when the part of the report we need is omitted and it oversited by a failing agency. 6
  7. 7. A Practical Guide to the New PCAOB Reporting Requirements ReferencesBylaws and rules of the public company accounting oversight board. (2011, August 24). Retrieved from http://pcaobus.org/Rules/Rulemaking/Pages/Docket001.aspxMichael, H. (2005). Practical pcaob reporting requirements. The CPA Journal, 80(2), Retrieved from http://news-business.vlex.com/vid/practical-pcaob-reporting-requirements- 76860554"Public Company Accounting Oversite Board."Registration and Reporting.(2010, April 24). Retrieved from http://pcaobus.org/Registration/Information/Documents/Registration_FAQ.pdf"Public Company Accounting Oversite Board."Registration and Reporting.(2010, April 24). Retrieved from http://pcaobus.org/Registration/rasr/Documents/Staff_QA- Annual_Reporting.pdf."Public Company Accounting Oversite Board."Registration and Reporting.(2010, April 24). Retrieved from http://pcaobus.org/Registration/Information/Documents/Staff_QAs_on_Registration_For m_3.pdf.Public Company Accounting OversiteBoard. (2010, April 24). Retrieved from http://pcaobus.org/Registration/Information/Documents/Staff_QAs_on_Registration_For m_4.pdf .Ramos, M. (2003, January). Auditors’ responsibility for fraud detection. Retrieved from http://www.buec.udel.edu/jenkinsd/Articles/Auditors’ Responsibility for Fraud Detection.htmUnknown. (2011, October 24). How the sec protects investors. Retrieved from http://www.ehow.com/facts_6777096_purpose-securities-exchange-commission.htmlUnknown. (2010). Retrieved from PCAOB website: http://pcaobus.org/Inspections/Reports/Pages/default.asp 7

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