The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002 to regulate the audit industry. Audit firms that have at least one publicly-traded client must register with the PCAOB, and their audits are subject to periodic inspections by the PCAOB. The PCAOB also creates auditing standards for audits of publicly-traded companies and has enforcement and disciplinary powers over auditing firms. The PCAOB has 5 board members who are appointed to 5-year terms by the Securities and Exchange Commission (SEC). The SEC also oversees the activities of the PCAOB.

The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002 to regulate the audit industry.  Audit firms that have at least one publicly-traded audit client must register with the PCAOB.  The PCAOB:

1.  Creates the auditing standards that govern audits of publicly-traded companies

2.  Periodically samples audits of publicly-traded companies to inspect whether the audit is of good quality. The PCAOB evaluates each audit firm every three years (every one year if it’s a large audit firm)

3.  Conducts enforcement and disciplinary actions against audit firms when necessary

The PCAOB has 5 board members who are appointed to 5-year terms by the Securities and Exchange Commission (SEC).  Fees paid by publicly-traded companies fund the PCAOB.  The SEC also oversees the activities of the PCAOB.  Think of the PCAOB as the parent and audit firms as the children.  Children are great but can be naughty occasionally, so it is important to have a parent (PCAOB) provide monitoring and discipline.  The SEC is the grandparent and it does not discipline the children, but it was the actions of the grandparent (SEC) that brought the parent (PCAOB) into being.

If you understood that analogy, go reward yourself with a slice of pizza.  If your significant other says, “What are you doing?  That has too many calories!” just say, “Edspira told me it’s okay.”