Over a decade ago, a series of sensational accounting scandals exposed severe weaknesses in our accounting and financial reporting system. Ultimately, a number of large companies collapsed after revelations about their fictitious accounting. This raised concerns about the public’s confidence in financial reporting, in the capital markets, and particularly, regarding the role of the public’s gatekeepers, the auditors. Nine months after Enron’s financial misdeeds were first reported, and weeks after the WorldCom scandal became public, Congress passed the Sarbanes-Oxley Act of 2002. [1]
The Sarbanes-Oxley Act, among other things, created a new organization called the Public Company Accounting Oversight Board (PCAOB). The PCAOB was created to provide external, and independent, oversight of the auditors of U.S. public companies. When establishing the PCAOB, Congress vested the Commission with the authority to both review and approve the PCAOB’s rules, standards, and budget. [2]