Responsibilities of PCAOB

Question 1

List the standard-setting responsibilities of the Public Company Accounting Oversight Board (PCAOB).

Answer 1

1. )Auditing and related attestation
2. )Quality control
3. )Ethics and independence standards

Question 2

The Sarbanes-Oxley Act of 2002 consists of 11 “Titles,” the first four of which are directly applicable to auditors. What is the purpose of Title IV?

Answer 2

It addresses a variety of “enhanced financial disclosures,” the best known of which deals with required internal control reporting (Section 404), among other matters.

Question 3

The Sarbanes-Oxley Act of 2002 consists of 11 “Titles,” the first four of which are directly applicable to auditors. What is the purpose of Title I?

Answer 3

1. )Establishes the Public Company Accounting Oversight Board (PCAOB)
2. )Gives standard-setting authority to the PCAOB regarding auditing, quality control, and independence standards
3. )Creates its role in overseeing the accounting firms required to register with the PCAOB

Question 4

List the five primary responsibilities of the PCAOB.

Answer 4

1. )Registration of public accounting firms
2. )Inspection of registered public accounting firms
3. )Standard setting
4. )Enforcement
5. )Funding

Question 5

What is the audit committee’s responsibility regarding nonaudit services not specifically prohibited by Title II of the Sarbanes-Oxley Act?

Answer 5

The issuer’s audit committee is required to approve any nonaudit services, including tax services, that are not specifically prohibited by Title II.

Question 6

How frequently is the Public Company Accounting Oversight Board (PCAOB) required to conduct inspections of registered public accounting firms?

Answer 6

The frequency of inspection depends on the number of issuers that a firm audits.

1. )The PCAOB must inspect annually firms that provide audit reports for 100 or more issuers
2. )The PCAOB must inspect every three years firms that provide audit reports for fewer than 100 issuers.

Question 7

What is the purpose of the Sarbanes-Oxley Act of 2002?

Answer 7

To address a series of perceived corporate misconduct and alleged audit failures (including Enron, Tyco, and WorldCom, etc.) and to strengthen investor confidence in the integrity of the U.S. capital markets

Question 8

The Sarbanes-Oxley Act of 2002 consists of 11 “Titles,” the first four of which are directly applicable to auditors. What is the purpose of Title III?

Answer 8

It established requirements related to “corporate responsibility” to make executives take responsibility for the accuracy of financial reporting (including a requirement for certification by the entity’s “principal officers”) and to make it illegal for management to improperly influence the conduct of an audit.

Question 9

The Sarbanes-Oxley Act of 2002 consists of 11 “Titles,” the first four of which are directly applicable to auditors. What is the purpose of Title II?

Answer 9

It established independence requirements for external auditors, which addressed perceived conflicts of interest (limiting nonaudit services, establishing a five-year rotation for the audit partner and review partner, and restricting members of the audit firm from taking key management positions, including CEO, CFO, controller, or chief accounting officer) during the one-year period preceding the audit engagement).

Question 10

List the two primary revenue sources through which the PCAOB’s budget is funded.

Answer 10

1. )Registration and annual fees from public accounting firms
2. )An annual “accounting support fee” assessed on issuers based on their relative monthly market capitalization