Audit Standard Setting and Inspection for U.S. Public Companies: A Critical Assessment and Recommendations for Fundamental Change

Article 1: Audit Standard Setting and Inspection for U.S. Public Companies: A Critical Assessment and Recommendations for Fundamental Change

In this article, the authors expressed their concerns on the PCAOB’s standard-setting and audit inspection process. The article mentioned several deficiencies and flaws within the system. Also, it gave out lots of recommendations to improve the system.

As a regulator that should be overseeing the public accounting firms and promoting the concept of corporate governance, PCAOB has a relatively short history comparing to other regulatory bodies. To me, it is understandable that the PCAOB function is still having lots of spaces for improvement. The real problem is that the PCAOB seems to have no sign of improving themselves. In six years, the PCAOB only published two significant auditing standards, which were taking credits from the existing standards. As an authoritative governing body, the PCAOB should think more about how to improve our current standards, provide more useful guidelines and fill in the gap, which the public need. Also, the requirement of no more than two CPAs sitting on the Board does not make sense to. I understand that the PCAOB was trying to keep their board members independent, but there are lots of ways to achieve the independency. The idea of asking non-CPAs that might not have sufficient knowledge and experience about this profession to oversee this profession is absurd.

To sum up, the PCAOB, an authoritative regulator that receives an enormous amount of funding from the government, is not providing enough value for the public, as it supposes to be. It should consider learning more from the public comments, for example, this article. PCAOB stands on such an important position in the accounting and auditing profession. It is necessary for them to realize their limitation and the need of improvement.

Article 2: Sarbanes-Oxley Act Sections 404

As a milestone of the development of business regulations, Sarbanes-Oxley Act has been contributing a lot to the restoration of public confidence since it was enacted in 2002. This section focuses on the enhanced financial disclosure, the corporate and criminal fraud accountability, as well as the penalties for the white-collar crime. There are two things that I want to talk about here.

First, the SOX Act requires more detailed disclosure in the financial statement, which allows the public was having access to more decision-making related information. It also put more burden of overseeing financial reporting and disclosure on the Audit Committee. After the enactment of this Act, the Audit Committee is required to have at least one financial or accounting expert, which the act gives quite detailed definition and criteria. Previous experience and qualifications are important for a financial expert, but I think it is more important to have them continuously approving their knowledge and expertise, to perform their oversight duties better. The act should probably give more requirements on the financial experts’ continuous education, to make sure that they are still competent and their knowledge does not fade from their memories.