Posted: March 22nd, 2023

The Public Company Accounting Oversight Board (PCAOB)

The Public Company Accounting Oversight Board (PCAOB) formulates international audit standards. PCAOB has a collaborative lawmaking process involving various stakeholders, such as audit firms, investment advisers, learning institutions, and businesses. Stakeholder engagement occurs through comment letters, where parties share opinions and suggestions on proposed laws and amendments (Beresford, 2015, p. 1). Public responses to PCAOB notices of proposed rules have competing influence in the development of accounting promulgations.

Stakeholders identify weaknesses in PCAOB rules. Flaws with a proposed regulation range from definition and vague language likely to result in misunderstanding during the implementation process (Gravian, 2014, p. 19-20). Response letters are open to the public; people can cite them to provide comprehensive opinions on suggested standards. The PCAOB relies on giving feedback to make appropriate changes to rules while clarifying concerns before issuing final regulations.

Comment letters have opposing viewpoints on proposed laws. Stakeholders raise varying concerns on PCAOB regulatory efforts depending on their understanding or interests in the proposed standards. For example, in a comment letter on PCAOB notification No. 2015-004, one stakeholder opposed the law, citing that detailed informational disclosure requirements provided minimal benefits to investors. However, seven other investors supported the same legislation (Beresford, 2015, p. 6). Indeed, supporters and opponents of the rule raise credible points, and their in-depth assessment helps the PCAOB to determine whether to continue, modify, or suspend the law. PCAOB is independent; thus, its final decisions are based on extensive consideration of all issues.

Additionally, stakeholders’ comment letters conduct a cost-benefit analysis of proposed rules to determine economic expediency of proposed regulations. Although PCAOB evaluates the economic impact of its proposals before releasing them to public, affected stakeholders undertake the same or more vigorous process on their businesses (Swanquist, 2014, p. 34). Economic expenses included in benefits analysis are the organization’s reputation, implementation period, and work intensity. Firms complete cost calculation through audit committees, which are responsible for adopting and implementing new PCAOB rules. Stakeholders’ results on the associated compliance price of standards determine the period that PCAOB should give corporations to adopt the rule.

Furthermore, stakeholders suggest modifications to PCAOB regulations to correct weaknesses and improve economic value. Stakeholders commenting on PCAOB proposal are knowledgeable and experienced with audit standards; hence, they provide expert recommendations (Dickins, 2018, p. 3). For example, Beresford advocated for in-depth study of PCAOB notification No. 2015-004 from investors’ perspectives to make appropriate adjustment to the rule (Beresford, 2015, p. 6). Sometimes comment letters may contain information that overwhelmingly opposes proposed laws with adequate backing reasons without statements on potential modifications. However, the PCAOB has the final say in the comment letters and way forward.

Stakeholders have a significant influence on development of accounting promulgations. Parties interested in new PCAOB proposals may find themselves in the same or similar sides, but each stakeholder makes an individual contribution to the law (Williams & Wilder, 2015, p. A32). Stakeholders use allowable comment period to write responses supporting or opposing proposed rules, discussing weaknesses, computing cost-benefit analysis, and suggesting viable changes to the standards. Shareholders’ comments are posted on PCAOB’s websites, allowing parties to read and respond to each other (Beresford, 2015, p. 6). The PCAOB compiles the competing stakeholders’ contribution to its regulations for comprehensive review before issuing final directions for public. Affected parties are expected to accept PCAOB’s decisions, although their perceptions receive attention just as other stakeholders.

References

Beresford, D. (2019). Rulemaking Docket No. 029. 1-8. Retrieved from https://pcaobus.org/Rulemaking/Docket029/003d_Beresford.pdf

Dickins, D., Doxey, M., Geiger, M., Nolder, C., & Roush, P. (2018). Comments by the Auditing Standards Committee of the auditing section of the American Accounting Association on the International Monitoring Group Consultation, strengthening the governance and oversight of the international audit-related standard-setting boards in the public interest. American Accounting Association, 12(1), C1-C10. doi: 10.2308/ciia-52089

Gravina, D. J. (2014). Proposed audit reporting changes: Considerations of stakeholders’ perspectives. 1-37. Retrieved from University of New Hampshire Scholars’ Repository.

Swanquist, Q. T. (2014). Client responses to non-compliant audits: An analysis of clients targeted by PCAOB Inspection. University of Tennessee, Knoxville. 1-52. Retrieved from https://pdfs.semanticscholar.org/e208/d94d21e4c9374e07e29883f6da636ebeabaf.pdf?_ga=2.220051294.657639516.1547538551-1605316453.1537388106

Williams, L. T., & Wilder, W. M. (2017). Audit firm perspective on audit firm rotation and enhancing independence: Evidence from PCAOB comment letters. Current Issues in Auditing, 11(1), A22-A44. doi:10.2308/ciia-51563