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The Public Company Accounting Oversight Board (PCAOB) is a private, non-profit corporation created by the Sarbanes-Oxley Act of 2002 (SOX). The Sarbanes-Oxley Act is congressional legislation aimed at limiting the accounting abuses and improprieties of publicly held companies. The U.S. Securities and Exchange Commission (SEC) is the federal agency responsible for overseeing the PCAOB. The PCAOB is governed by five board members appointed to five year terms by the SEC in coordination with the Board of Governors of the Federal Reserve System and the U.S. Secretary of the Treasury.
The board's primary mission is to analyze the relationship between public accounting firms and their clients. During a review on the accounting scandals of 2001, federal regulators determined that companies like Enron, WorldCom and Sunbeam had improper relationships with their auditors and public accounting firms. Because the public accounting firms offered consultation services and auditing services to these companies, auditors did not appear to have an independent relationship for assessing the accuracy and validity of each company's accounting information. Congress created the Public Company Accounting Oversight Board to improve the auditing practices of public companies and ensure investors and other stakeholders are protected from material errors or misstatements in corporate accounting information.
Although it is a private non-profit corporation, the Public Company Accounting Oversight Board has extreme regulatory ability in the area of public company accounting. It is the primary overseer of SOX legislation and how companies implement the required SOX accounting principles in their business practices. The PCAOB receives funds from public companies that are required to be audited under the SOX legislation. Public accounting firms who plan to offer auditing services for publicly held companies must also register with the Public Company Accounting Oversight Board and pay fees to remain in good standing with the regulation agency.
The oard does not have the authority to create or require publicly held companies to implement new accounting rules. The PCAOB currently uses a standing advisory group, consisting of the major U.S. accounting bodies, to help the PCAOB develop new accounting rules and principles. The PCAOB's current standing advisory group includes the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA), the Department of Labor, the Financial Accounting Standards Board (FASB), the Government Accountability Office (GAO), International Auditing and Assurance Standards Board and the SEC. This standing advisory group helps advise the Public Company Accounting Oversight Board on current or new auditing and accounting practices that can enhance the financial information reported by publicly held companies.