Chapter 2, Problem 1RQ

To determine

Explain the roles of the AICPA and the PCAOB in the development of auditing standards.

Explanation of Solution

American Institute of Certified Public Accountants (AICPA):

It is an association of certified public accountant founded in 1887. It establishes audit and ethics standard for the purpose of audit. AICPA also conducts the Uniform Certified Public Accountants examination.

Public Company Accounting Oversight Board (PCAOB):

The main aim of PCAOB is the protection of the investors and stakeholder’s right. The purpose of the PCAOB is that the companies have followed the accounting and auditing standards.

Role of PCAOB in the development of auditing standards:

In 2002, due to the increasing number of fraudulent financial reporting, the government passed the Sarbanes-Oxley Act of 2002.

This act has changed the audit process of public companies. Sarbanes-Oxley Act changed the regulatory authority of the auditor. This act resulted in the creation of the Public Company Accounting Oversight Board (PCAOB). It is a central body for the regulation of the audit of the public companies.

• It helped in the creation and adoption of the audit, quality control, professional and ethical standards.
• It provides the registration of the CPA firms.
• It provides the inspection of the CPA firms.
• It helped in the enforcement in the audit, professional, and ethical standards.

Role of AICPA in the development of auditing standards:

AICPA sets professional and technical standards for a certified public accountant in many areas. Some of them are as follows:

• AICPA helped in the formation of the Statements on Standards for Accounting and Review Services (SSARSs).
• AICPA helped in the formation of the Code of Professional Conduct.

Thus, the AICPA has contributed in the audit literature by developing various professional, ethical, and technical standards.