Reimagining Public Company Auditing Regulation: A Framework for Auditing Oversight

SYNOPSIS Complementing and extending an earlier analysis by Glover, Prawitt, and Taylor (2009), we propose a realignment of Public Company Accounting Oversight Board (PCAOB) responsibilities to promote independent, expert oversight of the auditing profession while mitigating issues of multiple auditing standard setters, political risk, and “crossover risk” (where auditing standard-setting may be conducted informally through inspections and enforcement). Specifically, we call for: (1) a single “FASB-style” independent and expert auditing standard setter for both issuers and nonissuers operating under the Financial Accounting Foundation (FAF); (2) a continuation of audit inspections by the remaining portion of the PCAOB, with certain enhancements to the inspections process to focus more squarely on improving audit quality; and (3) enforcement only by the Securities and Exchange Commission (SEC). We hope policymakers will consider the insights of Glover et al. (2009) and our updated framework.