The PCAOB's role in audit conduct and conscience

Abstract

The mission of the Public Company Accounting Oversight Board (referred to herein as the PCAOB or the Board) is to protect investors and further the public interest. In this article, the regulatory approach of the PCAOB is contrasted with the Securities and Exchange Commission (SEC) in the context of the “capture” and “public interest” models of regulatory behavior. After the WorldCom fraud, Congress could have stripped the CPA profession of its auditing franchise, but it chose to take a less drastic measure. The independent public accountants retained their audit franchise, but with a new regulator to augment their conscience. The approach is consistent with the SEC strategy in that the auditor continues to fulfill an important role in the financial reporting supply chain. The article discusses the ways in which it appears that the drafters of SOX attempted to infuse the Board with the qualities that have made the SEC so successful. While SOX was prescriptive in many areas, it also imparted a significant degree of discretion to the Board. The article analyzes how the Board has used the discretion granted to it by SOX in ways that are either consistent or inconsistent with the SEC model. Although the PCAOB was structured very similarly to the SEC, the Board has exercised its discretion in ways that appear to deviate from the SEC strategy. The decision to name itself as the auditing standard-setter is an example of the departure from the SEC's own strategy.