of Business Communications Feature
The Impact of the PCAOB on Competency Requirements of Future Auditors
The professional life of the independent auditor has changed.
According to Gary Holstrum, associate chief auditor and director of research at the Public Company Accounting Oversight Board (PCAOB), before the mid-1980s, the requirements for auditing firms largely included an understanding of accounting, economics, and ethics. Marketing and an in-depth knowledge of a given industry were not a significant focus for practicing auditors nor were they generally included in the accountancy curriculum.
In the latter part of the 1980s and into the 1990s, Holstrum says there was a shift in focus as firms started to market themselves based on the cost of their services as well as their ability to partner with management to reach management goals and to increase shareholder value. At this same time, a few accountancy curricula were undergoing a paradigm shift. Integrating an understanding of a client's business environment as part of a more holistic look at the business environment was gaining footing in some programs, most notably the undergraduate accountancy program at Illinois.
The business crisis of 2000-2001 brought the most significant changes to the field in decades. Members of the public lost confidence in the effectiveness of existing standards for audits of public companies. This negative view of business and auditing resulted in passage of the Sarbannes-Oxley (SOX) Act in July of 2002 and the establishment of the PCAOB in January of 2003.
The PCAOB is a private-sector, non-profit corporation created by SOX. The PCAOB oversees auditors of public companies to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports. The board, which reports to the Securities and Exchange Commission (SEC), has standards-setting, registration, inspection, investigation, and enforcement responsibilities. The operations of the board are funded by a levy on public companies based on their market capitalization. On the PCAOB website, Chairman Bill McDonough calls the board a "pioneering enterprise" intended to "bolster the integrity of the American economic system and restore public confidence."
Another result of the crisis, according to Holstrum, is that "people realize the critical social importance of accountancy." And, Holstrum notes that the regulatory environment is much more open today, with proposed rules and regulations available for industry and public comment. Such openness in the rule-making process has its costs, in both time and money. Changes come slowly as various groups such as the Financial Accounting Standards Board and the Department of Labor weigh in on different proposals. On-going projects of the various PCAOB teams is addressing language in the audit report, audits of internal controls, audit documentation, second partner review, and firm quality control.
"If an audit is effective, the system works well," said Holstrum commenting on already implemented changes. "If it isn't, [then the system] is not better than before."
Holstrum believes that current and future accountants face personal and professional challenges in keeping up with the competency requirements imposed by the post-SOX regulatory environment. The ability to evaluate internal controls, conduct audits of fair value, assess audit risk, detect fraud, maintain independence, and apply high ethical standards is a weighty list of goals. Setting goals for acquiring new competencies and for keeping up-to-date on current skills will help new auditors succeed.
Before joining the PCAOB as associate chief auditor and director of research, Gary Holstrum was a professor in the School of Accountancy at the University of South Florida, where he had also served as the Director of the School and Coordinator of the accounting PhD program. For the last six years, he was the United States representative on the International Federation of Accountants (IFAC) Education Committee and a member of the AICPA Education Executive Committee.
He has also served as a member of the Auditing Standards Board and held numerous roles on other task forces, advisory groups, and service committees. Dr. Holstrum is a former audit partner with Deloitte and has worked extensively with both large and small accounting firms. He has authored numerous journal articles, research monographs, and other publications on a variety of topics related to accounting, auditing, assurance services, information technology and international education.