The document provides an overview of the PCAOB reporting requirements for auditing firms. It discusses how the PCAOB aims to reduce financial fraud by requiring firms to submit annual and current reports on their audit practices and personnel. These reports collect information on the firm to confirm their independence and integrity. The document also outlines auditor responsibilities to detect fraud during audits and alternatives to the PCAOB such as strengthening the SEC.

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. A Practical Guide to the New PCAOB Reporting Requirements
The Sarbanes-Oxley Act of 2002 (SOX) requires that any accounting firm that prepares
or issues an audit report with respect to a U.S. public company must register with the Public
Company Accounting Oversight Board (PCAOB). Effective December 31, 2009, accounting
firms registered with the PCAOB are required to file annual and current reports with the
PCAOB. ("Bylaws and rules," 2011)
2. Justify how the reporting requirements of the PCAOB reduce the chance of financial
fraud.
PCAOB reduces the chances of financial fraud by requiring all audit firms to 1) to keep
the PCAOB up-to-date on a firm's basic professional information, such as name, location,
licenses, and contact information; 2) to provide the PCAOB with current information regarding a
firm's audit practice in order to facilitate analysis and inspection by the PCAOB and keep the
public informed of such information; and 3) to alert the PCAOB of any events that would require
more immediate action by the PCAOB in terms of inspections or enforcement and that might
otherwise warrant public disclosure per of SOX section 102(d), (Michael, 2005)
The collection of current data is an attempt to confirm auditors are remaining unbiased
and at arm's length in their findings of their client's financial records and to make public the
auditors information to investors. This submission is completely based on honesty of the
submitter 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 its
activity related to issuers over the most recent 12-month period. Form 2 requires a firm to
provide, among other things, information about its public issuer-related practice, internal and
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3. A Practical Guide to the New PCAOB Reporting Requirements
external resources on which the firm draws in performing audits, disciplinary histories of new
personnel, certain new relationships and acquisitions, information about fees billed to issuer
audit clients for various categories of services, and an affirmation of its statutory obligations to
cooperate with the PCAOB. (Michael, 2005) In addition to the annual and current reports
required on an ongoing basis, Form 3 is required for all material changes in the firm's disclosures
that had occurred since such firm's initial registration with Form 1. ("Public Company
Accounting," 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 any
firm at any time. If inaccuracies are found in the reporting forms, the PCAOB can bring
disciplinary 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 a
form to report accurately but in the event an error occurs, they submit an addendum to the form
immediately. ("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 be
helpful 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)
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4. A Practical Guide to the New PCAOB Reporting Requirements
The 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 not
have acceptable procedures and are not open to developing appropriate procedures then risk is
apparent 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 effect
either 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 material
misstatement due to fraud is such that he or she is considering withdrawing from the
engagement.
4. Recommend alternatives to the PCAOB.
The SEC was established to perform two broad functions: protect investors and promote
stability in the financial markets by enforcing securities laws enacted by Congress. The functions
of the SEC are broken down into numerous departments. The main departments are Corporate
Finance, which oversees the accuracy of public corporations' financial disclosures; Investment
Management, which supervises investment companies and investment advisors; Market
Regulation, which creates regulatory policy; and Enforcement, which prosecutes violators of
federal securities law. It is the responsibility of the Commission to:
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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 be
necessary. PCAOB charges large fees for their services but very little return is published to the
very shareholders they are to protect. I recommend an overhaul of the SEC to perform the tasks
the 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
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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 in
the stock market just like the SEC Act of 1934. The main purposes of these laws can be reduced
to 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, and
budget. The PCAOB.org site does offer inspection reports of auditors and firms but claims
"PORTIONS OF THE COMPLETE REPORT ARE OMITTED FROM THIS
DOCUMENT 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 investigation
reports that I reviewed. What is the real purpose of this agency? I do not see how it is providing
valuable information to the investors when the part of the report we need is omitted and it over
sited by a failing agency.
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7. A Practical Guide to the New PCAOB Reporting Requirements
References
Bylaws and rules of the public company accounting oversight board. (2011, August 24).
Retrieved from http://pcaobus.org/Rules/Rulemaking/Pages/Docket001.aspx
Michael, 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.htm
Unknown. (2011, October 24). How the sec protects investors. Retrieved from
http://www.ehow.com/facts_6777096_purpose-securities-exchange-commission.html
Unknown. (2010). Retrieved from PCAOB website:
http://pcaobus.org/Inspections/Reports/Pages/default.asp
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