Emerging Auditing Issues Accounting, Finance, SPSS Essay

Emerging Auditing Issues
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May 28, 2020
The Sarbanes-Oxley Act of 2002 created PCAOB, or the Public Company Accounting Oversight Board, that required that the auditors of the United States public companies be submitted to external and independent oversight, the practice before this act was self-regulated. The Congress made the PCAOB as a nonprofit corporation to supervise or oversee the audits made by the public companies in order for the investors and the public interest to have some form of protection through the promotion of accurate, well-detailed, communicative, and independent audit reports. The Board also looks after the audits of dealers and brokers, including the compliance reports filed according to federal security laws, to advocate their protections of the investors. The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 amended the Sarbanes-Oxley Act. The Dodd-Frank Act established a source of funding for PCAOB activities, principally through the annual accounting support fees. These fees are evaluated on public companies, about their relative average market capitalization per month, and broker-dealers, about their relative average quarterly tentative net capital. Together with the Chairman, the five members of the PCAOB Board are designated to five-year terms by the Securities and Exchange Commission (SEC).
Such an appointment comes after the deliberation with the secretary of the Treasury and the chair of the Board of Governors of the Federal Reserve System. Based on the law, the SEC has an authority to supervise over the PCAOB, including approval of the allotted budget, the setting of its standards, and the approval of the rules of the Board. As of 2019, PCAOB has 1796 registered accounting firms; 91 jurisdictions around the globe; 597 registered firm audits; 7,339 United States public companies representing around $45.533 trillion in global market capitalization; 416 registered firms audit; and 3,596 SEC-registered broker-dealers (PCAOB).
The author of this article agrees with the notion that the PCAOB has been active with improving the reliability of audited financial statements for the public users of the information. This is due to the structure of the method in checking and assessing a firm's financial and audit. In selecting issuer audits for inspection and review, the PCAOB committee uses random methods as well as risk-based methods. Most of the selections are derived from the internal evaluation of audits. They suppose to contain a heightened risk of solid misstatement. They pay extra attention to risk factors that involve industry or company development, trends in an economy, audit firm and partner, issuer capitalization size and changes, and history of inspection. Also, to provide the element of unpredictability, and probably unbiased, they select the remaining reports randomly.
The Role of the Board
The Board's inspection is structured to evaluate acquiescence with the rules of the Board, as well as the rules of SEC, and standards, dissemination of audit reports, and other matters with regards to the United States public companies, dealers, brokers, and above all, compliance with the Sarbanes-Oxley Act. These inspections do not include the analysis of all the audits the firm makes, nor is it created to detect every flaw or everything lacking the reviewed audits. Even though these inspections may differ with every firm, the committee focus on the auditor's processes of risk assessment, audit and financial reports on areas impacted by economic pressures and trends, reports on areas that show significant risk and challenges, as well as new or revised standards in accounting, and areas of recurring audit deficiencies. Also, they analyze the areas that centered for quality control such as the management processes and structure of the audit firm, their procedures, and policies for both the retention and acceptance of their clients, programs for internal inspections, how the firm acknowledge and answer their deficiencies in the quality of their audit reports, and the independence procedures as well its policies (Dwyer, 2020). All of the Board's summary of their findings and the current breakdown of financial data are provided in their annual reports.
Given the shift from self-regulation to federally regulated in the accounting profession, the author believes that the establishment of PCAOB leads to an increase in audit reports' accuracy and transparency. Back then, a large part of the drive for the passing of the Sarbanes-Oxley Act was attained from congressional and public concern in regards to the widespread "management" of public companies' earnings. This form manipulation of data results when managers deliberately make judgments and assumptions in accounting with a vision to enable their firms to report a certain level of income, most of the time this is the income that meets or barely exceed the expectations of the investors. Financial statements constructed in compliance with the generally accepted accounting principles (GAAP) may or may not be accurate, in scientific terms, because they are always tainted by a range of different subjective biases and judgment, for example, the manager may consciously or subconsciously derive the content of his reports basing on questions such as; a) how much will the company collect from the accounts receivable? b) what percentage of the loans it has made will not be paid? c) what portion of goods sold is subject to rights to return will in fact return d) how much will the company have to sustain in order to meet warranty obligations related to the services and products it has sold? Manager's subjective biases and judgment has a continuously progressing effect on public companies' audit reports in the latter years this is a result of two developments: the expansion of complex financial instruments that GAAP ask to be "market to market," and the likelihood of the public companies to restructure their operations with increasing prevalence, which gives rise to a need to make reservations to cover expected costs. These developments generate the possibility for an increase in the practice of molding the earning reports, though the primary cause of the issue in this aspect, possibly, is the keen attention on market expectations. When making the subjective judgments required by GAAP, managers of these companies have progressively did not put their mind to the objective of making an accurate report of the results of their companies' operations. Instead, their objective has inclined towards the molding of these results such that the reports depict the companies income fit to whatever financial expectations the managers themselves have led the market, or investors, to look forward to. Even if the accuracy of the reports improves and the "management" is reduced, problems involving transparency of public company financial reports persist, because eventually the accountants are left with accountants have no other choice but to take the financial estimates...