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The Role of Research at the PCAOB

The Role of Research at the PCAOB. Gary Holstrum Associate Chief Auditor and Director of Research, PCAOB Auditing Section Doctoral Consortium January 12, 2006. Caveat.

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The Role of Research at the PCAOB

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  1. The Role of Research at the PCAOB Gary Holstrum Associate Chief Auditor and Director of Research, PCAOB Auditing Section Doctoral Consortium January 12, 2006

  2. Caveat The views I express are my own personal views and not necessarily those of the PCAOB or of the Office of the Chief Auditor.

  3. Career Influences: Personal Experiences • PhD background (Iowa) & first teaching position (U of Texas) • Transition to auditing research • (U of Florida) • Late 1970s • Congressional scrutiny of profession • Pressure to increase research input into standards-setting process • Consideration of AICPA Director of Research position • Partnership at Deloitte • Auditing Standards Board • Research input re: Confirmations • International Accounting Education Standards Board • PCAOB

  4. Potential role of research in standards-setting process • The potential impact of research • Inherent limitations • Significant increase in auditing research in the last 10-15 years • Difficulty that standards-setters have in identifying relevant research, evaluating its validity, and synthesizing its significance • Solution: Have standards-setters work with academic researchers to develop synthesis of research that is relevant to each major standards-setting project

  5. 2006 Proposed Standards-Setting Activities • Auditor Risk Assessments* • Audits of Fair Value* • (*Research teams formed in early 2005 • Engagement Quality Review • Communications with Audit Committees • Audit Firm Quality Control • Financial Fraud • Audit Confirmations • Auditing Related Party Transactions • Audit Reporting Model

  6. Research Input to PCAOB Standards-Setting Projects • Auditing Section of the American Accounting Association • Created teams of researchers to prepare a synthesis of existing research • For all major PCAOB Standards-Setting Projects • Unprecedented level of relevant, usable research input • Seven new teams formed (Early November 2005) • Two research teams formed earlier • Risk assessment team has completed synthesis • Audits-of-fair-value team is in process of completing its synthesis

  7. Research Synthesis Teams for PCAOB Standards Projects • Auditor Risk Assessments* • Audits of Fair Value* • (*Research teams formed in early 2005 • Engagement Quality Review • Communications with Audit Committees • Audit Firm Quality Control • Financial Fraud • Audit Confirmations • Auditing Related Party Transactions • Audit Reporting Model

  8. Information about Research Synthesis Teams • Presentations by Auditor Risk Assessments Team and Audits of Fair Value Team at 1:30 p.m. Saturday, January 14 • PCAOB Briefing Papers on all nine projects are available on PCAOB Web Site (www.pcaobus.org) • Under Standing Advisory Group--For various SAG meeting dates • Also hyperlinked via Auditing Section web site: • PCAOB Standards-Setting Update articles in each recent issue of The Auditor’s Report • Announcement for PCAOB Research Teams

  9. Opportunities for Current Accounting Doctoral Students • Related to current research synthesis projects • Related to anticipated future research synthesis projects • Other research opportunities (in critically important areas)

  10. Other Research Opportunities:Cost-benefit analyses • Need for more cost-benefit research with more valid measures of the benefits related to SOX, 404, PCAOB Auditing Standard #2, and other PCAOB activities • Media filled with cost data • Very little research data on the real benefits to investors and the public interest • Need to measure the cost of fraudulent financial reporting to investors and the public interest • Estimating the likelihood of a decreased incidence of fraudulent financial reporting or materially misstated financial information • Need for synthesis of valid cost-benefit research

  11. Conclusion: PCAOB MISSION • To oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

  12. Bottom Line: Standards-Setters Need Your Help as Researchers

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