Public Company Accounting Oversight Board - PCAOB Powers

PCAOB Powers

Under Section 101 of the Sarbanes-Oxley Act, the PCAOB has the power to:

• register public accounting firms that prepare audit reports for issuers;
• set auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports by issuers;
• conduct inspections of registered public accounting firms;
• conduct investigations and disciplinary proceedings concerning, and impose appropriate sanctions where justified upon, registered public accounting firms and associated persons of such firms (including fines of up to $100,000 against individual auditors, and $2 million against audit firms);
• perform such other duties or functions as the Board (or the SEC) 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 their employees;
• sue and be sued, complain and defend, in its corporate name and through its own counsel, with the approval of the SEC, in any Federal, State or other court;
• conduct its operations, maintain offices, and exercise all of its rights and powers in any part of the United States, without regard to any qualification, licensing or other provision of State or municipal law;
• hire staff, accountants, attorneys and other agents as may be necessary or appropriate to the PCAOB's mission (with salaries set at a level comparable to private sector self-regulatory, accounting, technical, supervisory, or other staff or management positions);
• allocate, assess, and collect accounting support fees that fund the board; and
• enter into contracts, execute instruments, incur liabilities, and do any and all other acts and things necessary, appropriate, or incidental to the conduct of its operations and the exercise of its powers under the Sarbanes-Oxley Act.

Part of the PCAOB's power to set rules of the auditing industry includes the power to regulate the non-audit services that audit firms may offer their audit clients (such as consulting or tax services). This power was given to the PCAOB as a result of allegations, in cases such as Enron and Worldcom, that auditors' independence from their clients' managers had been compromised because of the large fees that audit firms were earning from these ancillary services.

In addition, as part of the PCAOB's investigative powers, the Board is empowered to require that audit firms, or any person associated with an audit firm, provide testimony or documents in its (or his or her) possession. If the firm or person refuses to provide this testimony or these documents, the PCAOB may suspend or debar that person or entity from the public audit industry. The PCAOB may also seek the SEC's assistance in issuing subpoenas for testimony or documents from individuals or entities not registered with the PCAOB.

Under Section 103 of the Sarbanes-Oxley Act of 2002, PCAOB was to establish auditing and related attestation, quality control, ethics, and independence standards and rules to be used by registered public accounting firms in the preparation and issuance of audit reports as required by the Act or the rules of the Securities and Exchange Commission.

The Board's Office of the Chief Auditor advises the Board on the establishment of such auditing and related professional practice standards. As of 2011, PCAOB has issued fifteen broad Auditing Standards.