Publication Date

3-12-2024

Document Type

Article

Organizational Units

Sturm College of Law

Keywords

Audit disclosure, SEC "securities and exchange commission", PCAOB "public company accounting overight board", Earnings release, Financial statements

Abstract

The paper discusses steps that the PCAOB needs to take to improve audit quality and investor trust in audits. This includes a different approach to standard setting, including a reduction in the use of requirements that are entirely principles based. The approach should also address more explicitly address the conflict between audit quality and commercial interests.

The focus of inspections needs to shift away from a primary emphasis on deficiencies to actual improvements in the quality of financial disclosure. In part this means inspecting audits of issuers that have a higher risk of fraud or GAAP violations and, in selecting areas of the audit to inspect, placing greater emphasis on areas of qualitative materiality. Finally, inspections should take into account more explicitly the potential bias that arises from the payment of audit fees by the client. This means targeting audits and areas of the audit that involve an elevated risk of excessive deference to management.

The PCAOB should also place greater emphasis on transparency. Independent oversight will not ensure trust in the audit absent adequate transparency. Without transparency there can’t be accountability.

Publication Statement

Copyright held by the authors. User is responsible for all copyright compliance.

Originally published as Brown, J. Robert, Trusting What You Can't See: Audit Oversight and the PCAOB (March 12, 2021). U Denver Legal Studies Research Paper, Available at SSRN: https://ssrn.com/abstract=4818270 or http://dx.doi.org/10.2139/ssrn.4818270

Download



Share

COinS