THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD AND ITS ROLE IN REDUCING OCCURRENCES OF FRAUD

Open Access
Author:
Bunney, Alexander
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Brian Spangler Davis, Honors Advisor
  • Samuel Burton Bonsall IV, Thesis Supervisor
Keywords:
  • Public Company Accounting Oversight Board
  • PCAOB
  • Fraud
  • Sarbanes-Oxley Act
  • SOX
  • Auditing
Abstract:
The role of the public company audit is vital to investor confidence and the economy. As history has demonstrated, the complex nature of accounting combined with the competitive nature of business and at times poor ethical standards of management has led to many frauds. Frauds are damaging for a number of reasons since they wipe out investors’ money and reduce public trust in management making people less likely to invest which hurts the economy. Performing an audit requires a vast amount of work particularly with the size of companies today and the complexity of accounting making detection of fraud difficult for even highly skilled teams of CPA’s. With the Enron, WorldCom and other scandals making clear that severe deficiencies existed in auditing standard, overhauls were made through the Sarbanes Oxley Act of 2002 (SOX). While most will agree the auditing standards today are a lot more extensive than pre-SOX and oversight has greatly increased, it is debatable how effective these measures have been in reducing fraud. SOX brought into effect many changes that will be mentioned in this thesis but the main focus will be on the creation and effectiveness of the Public Company Accounting Oversight Board (PCAOB). The role of the PCAOB is to promote the accuracy of public company audits through the standard setting and direct review of work performed by auditors. Before SOX audit firms were essentially self-regulated as the AICPA set auditing standards; this proved ineffective. With stricter, independent regulation and the threat of audit firm’s work being reviewed by the PCAOB, the idea was auditors would be more diligent in performing audits. In this thesis, I will analyze fraud before and after SOX and the work of the PCAOB to determine if the PCAOB has been effective in increasing audit quality, which should in turn reduce the occurrences of fraud.