Question 1

What are PCAOB auditing standards?

Accepted Answer

PCAOB auditing standards are the regulatory framework that governs how public company audits must be conducted in the United States. These standards, formally known as PCAOB Auditing Standards (AS), were established by the Public Company Accounting Oversight Board and replace the old AICPA standards for public company audits.

The standards cover everything from audit planning and risk assessment to evidence gathering and reporting requirements. Key PCAOB standards include AS 1015 (Due Professional Care), AS 2110 (Identifying and Assessing Risks), and AS 2301 (Audit Planning). These standards are more rigorous than traditional audit standards because they're designed to protect public investors and require extensive documentation, professional skepticism, and comprehensive testing of internal controls.

Question 2

What is the difference between GAAP and PCAOB?

Accepted Answer

GAAP (Generally Accepted Accounting Principles) and PCAOB serve completely different functions in financial reporting. GAAP is the set of accounting principles and standards that companies use to prepare their financial statements - it tells you how to record transactions, measure assets, and present financial information.

PCAOB, on the other hand, establishes the auditing standards that determine how auditors must examine and verify those GAAP-compliant financial statements. Think of it this way: GAAP governs how you prepare your financial statements, while PCAOB governs how auditors must review them. Companies follow GAAP when creating their financials, but auditors follow PCAOB standards when auditing those same financials.

Question 3

How is a PCAOB audit different from a normal audit?

Accepted Answer

PCAOB audits are significantly more comprehensive and rigorous than standard private company audits. The key differences include mandatory internal control testing, extensive documentation requirements, and stricter independence standards.

In a normal audit, auditors primarily focus on whether financial statements are accurate and comply with accounting standards. PCAOB audits go much deeper - they require auditors to test and report on your internal control systems, maintain heightened professional skepticism, and follow much more detailed procedures for evidence gathering and documentation.

PCAOB audits also require auditors to be registered with the PCAOB and subject to regular inspections, while private company auditors only need to follow AICPA standards. The scope is broader, the timeline is typically longer, and the documentation requirements are significantly more extensive.

Question 4

What is the difference between PCAOB and AICPA auditing standards?

Accepted Answer

PCAOB and AICPA auditing standards serve different markets and have different levels of rigor. AICPA (American Institute of CPAs) auditing standards apply to private companies and non-public entities, while PCAOB standards specifically govern public company audits.

The key differences include scope, documentation requirements, and oversight. PCAOB standards require more extensive risk assessment procedures, mandatory internal control testing for larger companies, and much more detailed documentation of audit procedures and conclusions. AICPA standards are generally more flexible and allow for more auditor judgment in procedures and documentation.

PCAOB standards also require auditors to maintain stricter independence standards and undergo regular inspections by the PCAOB. AICPA standards are overseen by peer review programs rather than government inspection. In essence, PCAOB standards are more rigorous because they're designed to protect public investors, while AICPA standards are tailored for private company stakeholders.

Question 5

Who do PCAOB standards apply to?

Accepted Answer

PCAOB standards apply to all public companies that file reports with the SEC, including companies listed on major stock exchanges like NYSE and NASDAQ. This includes domestic public companies, foreign companies with SEC reporting requirements, and certain private companies preparing for public offerings.

Specifically, PCAOB standards apply to accelerated filers (companies with market capitalization over $75 million), large accelerated filers (over $700 million), and smaller reporting companies. The standards also apply to companies conducting Regulation A offerings, some private companies with significant SEC reporting obligations, and entities preparing for IPOs or other public offerings.

Importantly, PCAOB standards don't apply to private companies, nonprofit organizations, or government entities unless they have specific SEC reporting requirements. These entities typically follow AICPA auditing standards instead.

Question 6

What is the difference between PCAOB and FASB?

Accepted Answer

PCAOB and FASB (Financial Accounting Standards Board) have completely different roles in financial reporting. FASB creates the accounting standards that companies must follow when preparing their financial statements - essentially the "rules" for how to measure, recognize, and present financial information.

PCAOB, in contrast, establishes the auditing standards that govern how auditors must examine and verify those financial statements. FASB tells companies how to prepare their financials, while PCAOB tells auditors how to audit them.

From an organizational perspective, FASB is an independent, private-sector body that develops accounting standards for all US companies (both public and private). PCAOB is a nonprofit corporation established by Congress specifically to oversee audits of public companies and protect investors.

The key takeaway is that FASB creates the accounting standards that companies follow, while PCAOB creates the auditing standards that auditors must follow when examining those same financial statements. They work together in the financial reporting ecosystem but serve very different functions.

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