Public Company Accounting Oversight Board

What is a 'Public Company'

A public company is a company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or the over-the-counter market. Although a small percentage of shares may be initially floated to the public, becoming a public company allows the market to determine the value of the entire company through daily trading.A public, publicly traded, publicly held company, or public corporation is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets. In some jurisdictions, public companies over a certain size must be listed on an exchange.

History

The first company to issue shares is generally held to be the Dutch East India Company in 1601, but quasi-corporate entities, often trading or shipping concerns, are known to have existed as far back as Roman times.

Advantages

Publicly traded companies are able to raise funds and capital through the sale (in the primary or secondary market) of shares of stock. This is the reason publicly traded corporations are important; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. The profit on stock is gained in form of dividend or capital gain to the holders.

The financial media and analysts will be able to access additional information about the business.

The owners are able to share risks by selling shares to the public. If he holds 100% of the share, he will pay all the debt, however, if he holds 50%, he only needs to pay 50% of the debt. It increases the asset liquidity and the company does not need to depend on fund from the bank. It improves the transparency of company information by releasing annual account report and transaction record. The company may be better known to the public,or increase its popularity. If some shares are given to the managers, the conflicts between managers and shareholders, the principal-agent problem, will be remitted.

Disadvantages

Many stock exchanges require that publicly traded companies have their accounts regularly audited by outside auditors, and then publish the accounts to their shareholders. Besides the cost, this may make useful information available to competitors. Various other annual and quarterly reports are also required by law. In the United States, the Sarbanes–Oxley Act imposes additional requirements. The requirement for audited books is not imposed by the exchange known as OTC Pink.The shares may be maliciously held by outside shareholders and the original founders or owners may lose benefits and control. The principal-agent problem, or the agency problem is a key weakness of public company. The separation of company's ownership and control is especially prevalent in such countries as U.K and U.S.

Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (PCAOB) is a private-sector, nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. Since 2010, the PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection. All PCAOB rules and standards must be approved by the U.S. Securities and Exchange Commission (SEC).

In creating the PCAOB, the Sarbanes-Oxley Act required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated.In a public company, accountants are buried with additional reporting requirements, though there is a clear opportunity to raise money through the public markets. In Public Company Accounting and Finance, we explore both of these aspects of a public company. The accountant must learn about earnings per share, segment reporting, and Staff Accounting Bulletins, as well as quarterly and annual reporting to the SEC. Meanwhile, the treasurer can engage in an initial public offering, file registration statements, or sell shares under various SEC exemptions.

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 and broker-dealers;
• set auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports of issuers;
• conduct inspections of PCAOB-registered public accounting firms;
• conduct investigations and disciplinary proceedings, and impose sanctions, against 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 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, as set out by the Sarbanes-Oxley Act to attract the highly skilled and experienced professionals needed to oversee global accounting firms);
• 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.

Auditors of public companies are prohibited by the Sarbanes-Oxley Act to provide non-audit services, such as consulting, to their audit clients. Congress made certain exceptions for tax services, which are therefore overseen by the PCAOB. This prohibition was made 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 may 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 bar 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.

The Board's Office of the Chief Auditor advises the Board on the establishment of auditing and related professional practice standards.