Audit Quality Improvement

Audit Quality Improvement

Introduction

The topic is based on the role of PCAOB (Public Company Accounting Oversight Board) in improving the audit quality for the organizations. In the past few years, many organizations have made an attempt for providing a definition of audit quality. The definition of audit quality has several dimensions. It should incorporate the concepts that have wide acceptance among the different stakeholders in the corporate world. The audit quality has a compliance with the auditing standards that are important in achieving the good results for the company. The biggest aspect for the audit quality standards is to meet the customer needs. This is an aspect that is a part of the business endeavor. This is the reason why the PCAOB was established in the year 2002 after the major corporate scandals that involved the famous company “Enron”. Therefore, all the issues related to the role of PCAOB in improving the audit quality for the organizations will be discussed in detail.

Background of Audit Standards

Over time accounting has evolved into a profession governed by numerous rules and regulations which have been created to directly or indirectly affect the accounting profession by professional organizations and the litany of governmental or quasi governmental entities. A concern has been the lack of information provided by firms in the public arena of which three major pieces of federal legislation have addressed, in part, and affect the public, the publicly traded firms, and the auditor; The Securities Act of 1933, The Exchange Act of 1934, and The Sarbanes Oxley Act of 2002. Assuming a resource base view developed by the auditing firms have developed as knowledge based organization with an entrepreneurial spirit of recognizing opportunities to expand into other accounting areas such as consulting on various financial and business matters, and satisfying markets which have not been adequately serviced. The expansion of audit firms into various areas of the public arena necessitates the auditing firm to consider the intricacies of large organizations in determining the fees charged which include primarily, the size of the firm, the complexities of the task in evaluating a firm, and the risk associated with evaluating and rendering an opinion of the public firm (Frank, Lowe & Smith, 2001).

A third major legislative action resulted in the creation of the Sarbanes Oxley Act of 2002 as a result of the collapse of the share prices of several large publicly traded corporations. The Sarbanes Oxley Act created new standards and increased the existing standards for public company management, boards of directors, financial analysts, and the public accounting firms in an attempt to restore confidence in the capital market. The Act also created an oversight board for accounting firms. Financial accounting has become a highly regulated formalized process requiring the publicly traded corporations to provide audited financial reports and other information to shareholders under regulations which subject the managers of public corporations and auditing firms for those publicly traded corporations to civil and criminal penalties for failures to report ...