Public Company Accounting Oversight Board: Overview, History

Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

What Is the Public Company Accounting Oversight Board (PCAOB)?

The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization that regulates auditors of publicly traded companies. The purpose of PCAOB is to minimize audit risk. In particular, the PCAOB oversees the audits of public companies, brokers, and dealers registered with the U.S. Securities and Exchange Commission (SEC)

Key Takeaways:

• The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization that regulates audits of publicly traded companies to minimize audit risk.
• The PCAOB was established at the same time as the Sarbanes-Oxley Act of 2002 to address the accounting scandals of the late 1990s.
• The board protects investors and other stakeholders of public companies by ensuring that auditors follow strict guidelines.

Understanding the Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (PCAOB) was established with the passage of the Sarbanes-Oxley Act of 2002. The act was passed in response to various accounting scandals of the late 1990s. The board protects investors and other stakeholders of public companies by ensuring that the auditor of a company's financial statements has followed a set of strict guidelines.

The PCAOB is overseen by the Securities and Exchange Commission and, since 2010, the PCAOB has overseen the audits of SEC-registered brokers and dealers.

PCAOB Advisory Groups

The PCAOB has two advisory groups: the Standing Advisory Group and the Investor Advisory Group. The role of these two groups is to provide advice and insight to the Board.

The Standing Advisory Group meets semi-annually to discuss data and technology, cybersecurity, corporate culture, communications on PCAOB standards, the governance and leadership of quality control systems, current or emerging issues affecting audits or auditors, and implementation of the new auditor’s report.

The Investor Advisory Group meets once a year to discuss the group's strategic plan, quality control standards, implementation of the new auditor’s report, and implementation of Form AP. The PCAOB Board has developed a five-step strategic plan, which is laid out in its annual report. The five-step plan is composed of the following:

• Drive improvement in the quality of audit services through a combination of prevention, detection, deterrence, and remediation.
• Anticipate and respond to the changing environment, including emerging technologies and related risks and opportunities.
• Enhance transparency and accessibility through proactive stakeholder engagement.
• Pursue operational excellence through efficient and effective use of our resources, information, and technology.
• Develop, empower, and reward our people to achieve our shared goals.

1,709

The number of PCAOB-registered firms in the United States as of 2021, according to the PCAOB annual report.

The PCAOB Today

Firms that audit public companies, brokers, and dealers must register with the PCAOB. Registered firms are subject to inspection of the audits they have performed. PCAOB is involved in setting standards aimed at improving the reliability of audits and may also enforce standards by imposing penalties for infractions.

In 2020, PCAOB sanctioned 13 firms and 18 individuals resulting from 219 audit inspections. In 2021, those numbers were 14 firms and 15 individuals sanctioned following 191 inspections.

1. PCAOB. "Annual Report," Page 6.
2. PCAOB. "Annual Report," Page 5.
3. PCAOB. "2020 Annual Report," Pages 8-9.

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