1 Jurisdiction United States of America (USA) 1. Organization Insert the name of the Organization, both in the local language and in English: Public Company Accounting Oversight Board ( PCAOB ) Include relevant contact information, including postal address, telephone numbers, a link to the website and other relevant information: For additional information, please contact: S. Bruce Wilson Director, Office of International Affairs Public Company Accounting Oversight Board (PCAOB) 1666 K St, NW, Suite 201 Washington, DC Office Include the basis for establishment and the mission/responsibilities and authority with respect to audit regulation: The PCAOB was created by the Sarbanes-Oxley Act of 2002 (the Act ), as amended. Section 101(a) of the Act states that the PCAOB is established to oversee the audit of companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. The Board has four primary responsibilities: 1. Registration of accounting firms that audit public companies trading in US securities markets, brokers, or dealers; 2. Inspection of registered accounting firms; 3. Establishment of standards for auditing, quality control, ethics, and independence, as well as attestation, for registered accounting firms; and 4. Investigation and discipline of registered accounting firms and their associated persons for violations of law or professional standards. All PCAOB rules are adopted by the Board and approved by the Securities and Exchange Commission ( SEC ). As of December 31, 2014, the PCAOB had a total of 809 employees. In addition to the headquarters in Washington, DC, the PCAOB operates eight regional offices and seven satellite offices.
2 Have there been any changes to your governing legislation since completing last year s Member Profile? Yes No If yes, please describe the changes: 2. Governing Body Composition and Members Describe the current composition of the organization s governing body: Pursuant to Section 101 of the Act, the Board shall consist of five members, including a chairperson. The members of the Board are appointed by the SEC, after consultation with the Chairman of the Board of Governors of the Federal Reserve System and the Secretary of the U.S. Department of Treasury. The current Board members are: Chairman: James R. Doty Member: Lewis H. Ferguson Member: Jeanette M. Franzel Member: Jay D. Hanson Member: Steven B. Harris What are the eligibility criteria / requirements or composition requirements for the members of the governing body? The Act requires that two, and only two, of the five Board members be or have been certified public accountants, provided that, if one of those two members is the chairperson, he or she may not have been a practicing certified public accountant for at least five years prior to his or her appointment to the Board. The Act also requires that all members of the Board serve on a full-time basis, and may not, concurrent with service on the Board, be employed by any other person or engage in any other professional or business activity. Is each member of the governing body independent of the audit profession? The audit profession includes, for example: audit firms, professional bodies and bodies or entities associated with the audit profession. 1 Yes 1 For purposes of this questionnaire, the audit profession does not include an individual who is a CPA, Chartered Accountant, or holder of another equivalent qualification, but who is not employed by a registered audit firm, nor employed by or acting on behalf of a professional accountancy body.
3 Are the majority of the members of the governing body non-practitioners? Yes If not all members of the governing body are independent, what safeguards are in place to provide for the organization s overall independence from the audit profession? Not applicable Is there a restriction or recusal process that is applicable to members of the governing body of your organization who are current or former auditors/practitioners? Yes Does this include a cooling-off period for former auditors? Yes If yes to either of the above, please describe: The Board s Ethics Code provides that, for a period of 12 months from the date of appointment, a Board member may not participate in the making of any decision which is reasonably likely to have a material effect, direct or indirect, on the Board member s former employer, business partner, or client. This rule applies to the Board member s employers, business partners, and clients during the five years preceding the Board member s appointment. In addition to this cooling off period, the Ethics Code provides that the Board member shall recuse himself or herself from any Board function or activities if a Board member becomes, or reasonably should become, aware of facts that would lead a reasonable person to believe that he or she, or his or her spouse, spousal equivalent, or dependents, may have a financial interest or personal relationship which might reasonably create the appearance of affecting his or her objectivity with respect to the Board s function or activities. Board members shall be restricted from practice before the Board, and the Commission with respect to Board-related matters, for one year following termination of Board membership. In addition, former Board members shall not practice before the Board, or the Commission with respect to Board-related matters, on a particular matter in which the Board member participated personally and substantially as a Board member.
4 The Chairperson may not have been a practicing certified public accountant for at least five years prior to his or her appointment to the Board. Other than the governing body, are members of the profession involved in your organization (e.g., in a management or inspection function)? Yes No If yes, please describe their role: 3. Funding Arrangements Describe the main funding arrangements, including the setting and approval of the budget and the fees, if any: Section 109 of the Act provides that funds to cover the Board's annual budget (less registration fees and annual fees paid by public accounting firms as mentioned below) are to be collected from "issuers, brokers and dealers" as defined in the Act. The amount due from such companies is referred to in the Act as the Board's "accounting support fee." Accounting support fees fund the Board's operations. Once each year, the Board will compute the aggregate amount of such fees that will be assessed to issuers, brokers and dealers based on the Board's budget for that year, as approved by the SEC. Failure to pay constitutes a violation of the Securities Exchange Act of 1934, as amended, and the Board refers such failures to the SEC. In addition to the accounting support fees, fees are also collected from public accounting firms to cover the costs of processing and reviewing registration applications, and for the costs of processing and reviewing periodic reports that firms are required to submit. Is the funding free from undue influence by the profession? Yes 4. Inspection System Do you have the responsibility for recurring inspections of audit firms undertaking audits of public interest entities? Yes Is this responsibility undertaken directly or through oversight of inspection conducted by another party? Directly Through Oversight
5 If through oversight of another party, please describe the other party, its role, and the arrangements for oversight: Please describe the requirements and practices regarding the frequency of inspections: Accounting firms (US and non-us) that prepare or issue audit reports on public companies, brokers or dealers registered with the U.S. SEC, or play a substantial role in the preparation or issuance of such audits are required to register with the Board. The Board is also required by the Act to conduct a continuing program of inspections of registered public accounting firms. In those inspections, the Board assesses compliance with the Act, the rules of the Board, the rules of the SEC, and professional standards, in connection with the firm s performance of audits, issuance of audit reports, and related matters involving US public companies. The Act requires the Board to conduct inspections annually for registered firms that provide audit reports for more than 100 US-registered public companies and at least triennially for registered firms that regularly provide audit reports for 100 or fewer US-registered public companies. 5. Audit and Financial Market Provide the number of audit firms subject to inspections. Include an indication of the number of public interest audits and other audits that fall under the member organization s oversight / mandate. The PCAOB s mandate includes only the oversight of the registered firms that audit public companies, brokers and dealers registered with the U.S. SEC. The PCAOB does not have oversight over the audits of other types of entities. As of December 31, 2014, 2,201 audit firms were registered with the Board, including 1,300 firms in the United States and 901 non-u.s. firms located in 89 jurisdictions. The Act requires the Board to conduct inspections annually for registered firms that provide audit reports for more than 100 US public companies and at least triennially for registered firms that regularly provide audit reports for 100 or fewer US public companies. The number of firms subject to inspection triennially varies based on how many registered firms have performed audit work for public companies that brings them within the scope of the inspection requirement. In 2011, the Board adopted a temporary rule to establish an interim inspection program for firms that audit brokers and dealers while the Board considers the scope and other elements of a permanent inspection program. In August 2012, the Board released its first report on the progress of the interim inspection program for auditors of brokers and dealers, providing an overview of the new interim program and the audit
6 deficiencies identified in the initial group of inspected audits of brokers and dealers. The PCAOB regularly inspects registered accounting firms that perform audits of public companies and other issuers. In 2014, the PCAOB inspected 219 firms, including 162 firms in the United States and 57 non- U.S. firms. The PCAOB also conducts an interim program of inspections of firms that audit brokers and dealers registered with the U.S. Securities and Exchange Commission. In 2014, the PCAOB inspected 66 such firms. Since it began inspecting audit firms in non-u.s. jurisdictions in 2005, the PCAOB has conducted inspections in 44 non-u.s. jurisdictions, including joint inspections with audit regulators in 15 non-u.s jurisdictions.
7 What are the sizes and market shares of each of the largest audit firms? Fiscal Year 2013 Opinions Issued and Audit Fees Charged by Firms Headquartered in the U.S. (Excludes Mutual Funds and Trusts) Audit Firm % Share of: Audit Opinions Issued Market Cap of Issuers Audited Audit Fees Deloitte & Touche LLP 11% 20% 22% Ernst & Young LLP 15% 30% 25% KPMG LLP 10% 17% 16% PricewaterhouseCoopers LLP 11% 30% 30% BDO USA, LLP 4% 1% 1% Grant Thornton LLP 5% 1% 2% All GPPC firms 55% 99% 96% Non-GPPC firms 45% 1% 4% Total 100% 100% 100% out of out of out of approx 8,100 opinions approx $23 trillion approx $10 billion Sources: Percentages above on Opinions Issued and Audit Fees are derived from Audit Analytics data. Market Cap data is from Standard & Poors. 6. Main Other Tasks Performed by Member Describe whether the Member also performs other tasks, such as registration, education, standard setting and enforcement in the area of auditing, or other supervisory tasks, such as supervision of financial reporting or securities regulation: The mission of the PCAOB is to oversee the auditors of public companies, brokers and dealers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. Section 101 of the Act provides that the PCAOB s duties include: 1. to register public accounting firms that prepare audit reports for issuers, brokers and dealers in accordance with Section 102 of the Act;
8 2. to establish or adopt, or both, by rule auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports for issuers, brokers and dealers in accordance with Section 103 of the Act; 3. to conduct inspections of registered public accounting firms in accordance with Section 104 of the Act and the rules of the PCAOB; 4. to conduct investigations and disciplinary proceedings concerning, and impose appropriate sanctions, where justified, upon registered public accounting firms and associated persons of such firms, in accordance with Section 105 of the Act; 5. to perform such other duties or functions as the PCAOB (or the SEC), by rule or order) determines are necessary or appropriate to promote high professional standards among, and improve the quality of audit services offered by, registered public accounting firms and associated persons thereof, or otherwise to carry out the Act, in order to protect investors, or further the public interest; 6. to enforce compliance with the Act, the rules of the PCAOB, professional standards, and the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, by registered public accounting firms and associated persons thereof; and 7. to set the budget and manage the operations of the PCAOB and the staff of the PCAOB. 7. Major Events and Activities Describe any recent major events and activities: In 2014, the PCAOB continued conducting and issuing reports on audit inspections. See here for inspection reports and here for the PCAOB s most recent Strategic Plan. Information on the following items can be found here. 1. Standards May 7, 2014 The PCAOB issued a supplemental request for comment on its proposal for the reorganization of PCAOB auditing standards into a topical structure with a single integrated numbering system. The proposed reorganization is intended to present the standards in a logical order that generally follows the flow of the audit process. May 15, 2014 The PCAOB released staff guidance on Economic Analysis in PCAOB standard setting. This guidance established an analytical framework for staff to evaluate the economic implications of standard-setting projects that are presented for Board consideration.
9 June 10, 2014 The PCAOB adopted a new auditing standard (Auditing Standard No. 18, Related Parties) and amendments to other auditing standards to strengthen auditor performance requirements in three critical areas of the audit: related party transactions, significant unusual transactions, and a company's financial relationships and transactions with its executive officers. August 19, The PCAOB issued for public comment a Staff Consultation Paper on standard-setting activities related to auditing accounting estimates and fair value measurements. September 9, 2014 In light of significant audit deficiencies in the area of auditing revenue that have been frequently observed during PCAOB inspections, the PCAOB issued a Staff Audit Practice Alert to highlight for auditors the requirements for auditing revenue under PCAOB standards. September 22, 2014 The PCAOB issued a Staff Audit Practice Alert to remind auditors to continue to follow existing PCAOB standards when considering a company's ability to continue as a going concern. This alert was issued in light of changes to U.S. generally accepted accounting principles, or U.S. GAAP, about disclosure of uncertainties about a company's ability to continue as a going concern. 2. Enforcement May 7, 2014 The PCAOB announced settled disciplinary orders imposing sanctions on two audit firms and four individuals for violations of the federal securities laws and PCAOB rules and auditing standards relating to auditor independence, quality control, and audit documentation. July 7, 2014 The PCAOB announced a settled disciplinary order imposing sanctions on a former PricewaterhouseCoopers LLP partner for audit failures, citing violations of ignoring or failing to properly address numerous indicators of improperly recognized revenue in significant unusual transactions. December 8, 2014 The PCAOB announced settled disciplinary orders imposing sanctions on seven audit firms for violating rules requiring that the auditors of brokers and dealers be independent of their audit clients. December 17, 2014 The PCAOB announced a settled disciplinary order imposing sanctions on a partner of Grant Thornton Japan for audit failures.
10 3. Meetings & Events April 2-3, 2014 The PCAOB held a public meeting to obtain further input on a proposal to enhance the auditor's reporting model. (March 20, 2014 news release) June 24-25, 2014 The PCAOB held a meeting of its Standing Advisory Group to discuss recent PCAOB developments and the Board s current standard setting agenda. Additionally, the agenda included discussion of initiatives to improve audit quality, cybersecurity, revenue recognition, and going concern. (June 10, 2014 news release) October 2, 2014 The PCAOB held a Standing Advisory Group meeting to discuss the potential need for changes to PCAOB standards for auditing accounting estimates and fair value measurements. (September 18, 2014 news release) October 20, 2014 The PCAOB held an Investor Advisory Group meeting to discuss the following: the audit firm business model and incentives; how to improve audit quality and the relevancy of the audit; and the relationship and role of the auditor with the audit committee. (September 29, 2014 news release) October 27, 2014 The PCAOB s Center for Economic Analysis, in conjunction with the Journal of Accounting Research, held its first annual Economic Conference on Auditing and Capital Markets. The conference in Washington, DC, was attended by more than 120 researchers from around the world. November 20-21, 2014 The PCAOB held a Standing Advisory Group meeting with a focus on fraud. Other topics discussed include auditing revenue and a summary of comments received on the staff consultation paper on auditing accounting estimates and fair value measurements. (November 6, 2014 news release) November 19, 2014 The PCAOB hosted more than 60 officials from audit regulators in 30 non-us jurisdictions and from five international organizations during its eighth annual International Auditor Regulatory Institute. 4. International Affairs March 31, 2014 The PCAOB announced a cooperative agreement with the Supervisory Board of Public Accountants (RN) of Sweden relating to the oversight of audit firms subject to the regulatory jurisdictions of both regulators.
11 July 18, 2014 The PCAOB announced a cooperative arrangement with the Danish Business Authority (DBA) for the oversight of audit firms subject to the regulatory jurisdictions of both regulators. 5. Broker-Dealer Audit Inspection Program March 20, 2014 The PCAOB announced 2014 Forums on auditing smaller broker-dealers. June 26, 2014 The PCAOB released staff guidance to help auditors of brokers and dealers registered with the Securities and Exchange Commission to plan and perform audits in accordance with PCAOB standards as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and SEC rules. August 18, 2014 The PCAOB released its third progress report on PCAOB inspections of broker and dealer auditors, which continued to show a high number of findings.