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TheÂ Public Company Accounting Oversight BoardÂ (PCAOB) is a private-sector, non-profit corporation created by theÂ Sarbanes-Oxley Act (SOX), a 2002Â United States federal law, which also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' under the jurisdiction of Securities and Exchange Commission (SEC) to manage theÂ auditorsÂ ofÂ public companies. The purpose of PCAOB is to protect the interests of investors and public interest in the preparation of fair, informative and independent audit reports.
In Malaysia, the Audit Oversight Board (AOB) is established under Part IIIA of the Securities Commission Act 1993. AOB is intended to assist Securities Commission (SC) in overseeing the auditors of public interest entities (PIE) and to protect the interests of investors by promoting confidence in the quality and reliability of audited financial statements of public-listed companies and public-interest entities.
The creation of both PCAOB and AOB were a result of the increasing number of accounting restatement by public companies and a series of high-profile accounting scandals such as Enron and WorldCom. Their goal is to improve the quality ofÂ audited financial statements, reduce the risk of auditing failures, and increase public trust in financial reporting processes and of the auditing profession.
The PCAOB has five members, including a chairman, each of whom is appointed by U.S. Securities and Exchange CommissionÂ (SEC). Precisely two members of the PCAOB must be or have been aÂ Certified Public Accountant. However, if the chairman of the PCAOB is one of those two members, he or she may not have been a practicing certified public accountant for at least five years prior to being appointed to the Board. Each member serves full-time, for staggered five-year terms. The salary of the PCAOB's chairman is currently $556,000 per year, while the salaries of other board members are $452,000 annually. The Board's annual budget of approximately $180 millions, which must be approved by the SEC each year, is funded by fees paid by U.S. securities issuers. The organization has a staff of over 600, and its headquarters is inÂ Washington, D.C.
However, AOB has seven members, including chairman, each of whom is appointed by the Malaysia Securities Commission (SC).
PCAOB is responsible to register auditors and firms that audit U.S. public companies, set auditing and ethical standards, conduct investigations, disciplinary proceed in respect of auditors of public companies and enforce compliance with SOX.
AOB is responsible to register audit firms and auditors of public-interest entities, adopt auditing and ethical standards of MIA, conduct inspections and monitoring programmes, inquiries and impose sanctions and cooperate with relevant authorities and other oversight bodies outside Malaysia. In shorts, the functions of AOB are registration, inspection, inquiry, sanctions and standard setting.
Per Section 102 of Sarbanes Oxley Act, accounting firms that intend to perform public audits on U.S. public companies have to register with PCAOB. Section 106(a) of the Act provides that any non-U.S. public accounting firm that prepares or furnishes an audit report with respect to any U.S. public company is subject to the Board's rules to the same extent as a U.S. public accounting firm. Any public accounting firm applying to the PCAOB for registration pursuant to Rule 2100 must complete and file an application for registration on Form 1 by following the instructions to that form. Unless directed otherwise by the Board, the applicant must file such application and exhibits thereto electronically with the Board through the Board's web-based registration system. An applicant may withdraw its application for registration by written notice to the PCAOB at any time before the approval or disapproval of the application.
In Malaysia, any person who is an approved company auditor under section 8 of theÂ Companies Act 1965Â and who is a signing partner or who performs the function of an engagement quality control reviewer in respect of the preparation of the audited financial statements of a PIE must be registered as an individual auditor with the AOB. However, auditor or audit firm who are not auditing the financial statement of PIE can register with the AOB only if they are currently an auditor approved by section 8 of the Companies Act 1965. Once an individual auditor or audit firm is registered with the AOB, both the individual auditor and the audit firm will be subject to the provisions in Part IIIA of the SCA which include inspections, inquiries and sanctions. Applicant may withdraw their registered status by notifying the AOB in writing the reasons for doing so and return the notification of registration to the AOB. However, the registration fee will not be refunded.
To apply for registration with the PCAOB, firm will have to go to the PCAOB's Web site at www.pcaobus.org, Web-based system, complete the registration application, and submit the application to the Board electronically. The first step in registering is to provide basic information about itself, and create a user ID and password. Once completed, the firm will receive a "confirmation code," directing it to complete its Form 1. The Form 1 registration application may be completed as a web form. Firms do not have to complete and submit the form immediately after accessing the system. Firms may save it in the system and return to it at a later time to complete and submit it. After Form 1 is submitted, application will be processed by the registration system, an invoice will be generated. Processing of application can take up to 24hours, after which applicant can come back to the registration system to view and pay the invoice via a provided link. Once paid, application will be deemed submitted.
The Board has up to 45 days after the date your firm submits your application to take action on your application. The actual number of days until approval will vary depending on the information contained in the application and the number of applications that are pending at the same time as your application. However, if the
Board requests additional information concerning the application, a new 45-day period will begin when the additional information is received. In addition, if the Board cannot determine whether it is in the public interest to approve a firm's application, the Board may hold a hearing.
For AOB, applicants may submit their application for registration in print and soft copies by hand or courier service. An AOB registration is valid for a period of 12 months from the date of registration. If submit application by hand, applicant are required to bring along a duplicate copy of a covering letter which the AOB will acknowledge upon receiving the complete set of forms and relevant documents from applicant. If submit application by courier service, an acknowledgment letter will be faxed to applicant upon receiving the complete set of forms and relevant documents from applicant. Individual auditor is applying through Form 1 while audit firm is Form 2.
Â Each applicant for registration must pay a registration fee. PCAOB will, from time to time, announce the current registration fee. The application fee is due at the time of submission of the application. The registration fee will be computed individually for each firm submitting a Form 1 and will be based on the number of issuer clients that an applicant audited during the preceding calendar year. Here are the charges of application fee:
Preceding Year Issuer Audit Clients
1001 and above
The annual fee is due by July 31 of each year and must be paid by each firm that is registered as of March 31 of that year. Firms that register after March 31 of the year do not begin to pay the annual fee until the following year. The Board intends to transmit invoices for the annual fee by early May of each year, but the fee is due regardless of whether the firm receives the invoice and regardless of whether the firm has filed the required annual report on Form 2. The current annual fee schedule is:
Firms with more than 500 issuer audit clients and more than 10,000 personnel
Other firms with more than 200 issuer audit clients and more than 1,000 personnel
All other firms
No portion of the registration fee is refundable, regardless of whether the application for registration is approved, disapproved, or withdrawn.
In Malaysia, the AOB will only require a registration fee on individual auditors even though both audit firms and individual auditors need to be registered. In this regard, each individual auditor seeking registration will need to pay RM5,000Â upon submission of the application. These fees should be paid annually upon submission of application of renewal of registration with the AOB.
PCAOB inspects registered public accounting firms to assess compliance with the Sarbanes-Oxley Act, the rules of the PCAOB, the rules of the Securities and Exchange Commission, and professional standards, in connection with the firm's performance of audits, issuance of audit reports, and related matters involving U.S. companies and other issuers. The Act requires the Board to conduct inspections annually for firms that regularly provide audit reports for more than 100 issuers, and at least once in every three years for firms that regularly provide audit reports for 100 or fewer issuers. PCAOB will prepare a written report on each inspection to the SEC and to certain state regulatory authorities. The Board also makes portions of the reports available to the public. However, certain information is restricted from public disclosure, or its disclosure is delayed, as required by the Act.
According to section 31V of the SCA, AOB shall, from time to time, conduct inspections to assess compliance with the auditing and ethical standards by an auditor, and the quality of audit reports prepared relating to the audited financial statements of PIE. The AOB may inspect auditors via a regular inspection program which is conducted on a routine basis or a special inspection program which could be driven by specific concerns that may be event-driven or based on industry concerns.
Further, an AOB inspection may be carried out at either the firm review level or at the engagement review level or both. A firm review focuses on the review of an audit firms quality control systems and practices and the degree of compliance with the requirement of the International Standards of Quality Control 1 ("ISQC 1"). An engagement review on the other hand aims to assess the degree of compliance with auditing and ethical standards of an audit engagement conducted by an auditor.
Sanctions imposed by the PCAOB may include suspension or revocation of a firm's registration, suspension or bar of an individual from associating with a registered public accounting firm, and civil money penalties. The Board may also require improvements in a firm's quality control, training, independent monitoring of the audit work of a firm or individual, or other remedial measures. PCAOB will provide the firms and persons in breach an opportunity for a hearing before sanctions imposed or impose sanctions designed to deter possible recurrence and enhance the quality and reliability of future audits.
Part IIIA of the SCA empowers the AOB to impose a broad range of administrative-type sanctions on any person who contravenes, fails to comply with or give effect to the provision of the Part IIIA of SCA, any condition that imposed on a registered auditor or any written notice, guidelines issued by SC. The sanctions include suspensions, monetary fine, reprimand, censure and any other appropriate sanctions. SCA requires AOB to give the person in breach a right to be heard before a sanction imposed. A person who has been sanctioned or who is dissatisfied with the decision of the AOB can appeal to SC against the said decision within 30 days from the date of the decision.
Auditing and ethical standards
In PCAOB, applicants are required to observe all auditing and ethical standards. There are two kinds of standards in auditing which are standards and interim standard. Standards are been adopted by PCAOB and approved by SEC which are AS No.1-7. In 2003, PCAOB adopted certain pre-existing standards as its interim standards. According to Rule 3200T, Interim Auditing Standards consist of generally accepted auditing standards, as described in the AICPA's Auditing Standards Board's Statement of Auditing Standards No. 95. For ethical standards, applicants need to consider for the rules and interim standards. According to Rule 3500T, Interim Ethics Standards consist of ethics standards described in the AICPA's Code of Professional Conduct Rule 102, and interpretation and rulings. In addition, Interim Independence Standards consist of independence standards described in the AICPA's Code of Professional Conduct Rule 101 according to Rule 3600T.
Applicants are required to observe all auditing and ethical standards that may be adopted by the AOB from time to time which includes all auditing and ethical standards adopted by the MIA and including by-laws and circulars published by the MIA relating to auditing and ethical standards. All of them must compliance with International Standard on Quality Control (ISQC) 1, which is the quality control for firms that perform audits and reviews of financial statements, and other assurance and related services engagements.