The Six Phases of Compliance
How to Hire a PCAOB Consultant
The Public Company Accounting Oversight Board (PCAOB) is a non-profit corporation that regulates auditing firms. Created by the Sarbanes-Oxley Act in 2002, the PCAOB establishes rules for auditing, ethics, independence, and quality control. It also registers public accounting firms that audit public companies.To prepare for a PCAOB inspection or investigation, you’ll need help. Hire valuation experts or professional malpractice attorneys, depending on your situation.
Identify why you need a consultant.You may be inspected by the PCAOB, or they may have opened a more formal investigation. Depending on your situation, you will need different types of consultants:
- If you are being inspected, then you’ll need a valuation expert to help you analyze and document the fair value measurements contained in your audits.
- However, if the PCAOB has decided to seek a formal investigation or disciplinary proceedings, you’ll need an attorney who specializes in professional malpractice, preferably accounting malpractice.
Research valuation experts.You can find valuation experts online by performing a basic Internet search. Type “business valuation expert” or “business valuation research” in your favorite search engine and look at the results. Add your location to your search string to find someone near you.
- Don’t type “PCAOB consultant,” since very few search results come up for that combination.
Ask for a referral to a valuation expert.The PCAOB inspects auditing firms regularly, so another firm might have used a valuation expert recently. Ask them if they would recommend their consultant.
- If you already have a lawyer, you can ask them for advice on who to hire as well.
Find a professional malpractice attorney.Your corporate counsel should be able to find an experienced attorney for your company. However, if you’re a smaller auditing firm without counsel, you can find an experienced attorney in the following ways:
- Look on Martindale website or another online database.Search for professional malpractice or professional negligence attorneys.
- Search big law firms in your area. Look at firms in the closest city and see if they have professional malpractice attorneys.
- Obtain a referral from your local or state bar association. You can find the nearest bar association here: . Type in your zip code.
Choosing a Consultant
Compare relative experience.Make sure the consultant has experience representing auditing firms before the PCAOB. Some Sarbanes-Oxley consultants primarily help businesses, not auditing firms. If you can’t identify someone’s experience from their website, call up and ask for a brochure or other information that explains their experience.
- Remember that Sarbanes-Oxley was passed only in 2002, so no one will have extensive experience with PCAOB investigations or sanctions hearings.
- Nevertheless, make sure the consultant or lawyer has demonstrated experience in a PCAOB investigation like yours.
Review educational credentials.A lawyer should have a law degree and be a member of the bar of the state where they practice. Lawyers who specialize in accounting malpractice may also have accounting degrees or CPA credentials. They aren’t required to, but you might find it helpful.
- For a business valuation expert, you can check if they are accredited by any of the five standard accrediting agencies.For example, they may be Accredited in Business Valuation (ABV) by the American Institute of CPAs. To qualify, candidates must hold a CPA and pass an exam.
- There are other certifications a business valuation expert could have, such as the ASA certification from the American Society of Appraisers or the CVA certification by the National Association of Valuation Analysts.
Call for a consultation.You should meet with the valuation expert or attorney ahead of time to discuss your situation generally. This will also give you a chance to judge their personality. You’ll want to hire someone you can work closely with.
- A lawyer might offer a free or reduced-fee consultation. However, think about paying full price, especially if you are meeting with a big firm lawyer.
- Ask what you should bring to your consultation. For example, the lawyer might want to review any communication from the PCAOB.
Ask about fees.Lawyers generally charge by the hour. Before you hire them, they should provide you with a “fee agreement” or “engagement letter” that spells out in detail what they will do and how you will be charged.
Understanding the PCAOB’s Powers
Compare regular and special inspections.The PCAOB can perform two types of inspections of auditing firms: regular and special. You should identify the differences between the two:
- Regular. These are schedule periodically depending on how many audit reports your firm issues. The regular inspection examines and tests your firm’s audit and quality control procedures.
- Special. These inspections focus on limited issues as determined by the PCAOB. Your firm is required to work closely with the PCAOB, answering any questions they have and allowing full access to your papers.
Understand investigations.If the PCAOB finds problems, they may report them to the Securities and Exchange Commission (SEC) and/or state regulatory offices. Any violation may also warrant a full-blown PCAOB investigation. Investigations may begin as informal ones.
- However, if the informal investigation uncovers enough information, the PCAOB can begin a formal investigation by issuing an “Order of Formal Investigation.”
- The PCAOB may review any document or interview anyone necessary.
Defend yourself at disciplinary proceedings.Based on the results of an investigation, the PCAOB may decide to discipline firms or individual employees. The PCAOB can bring disciplinary hearings for violations of any of the following:
- any PCAOB rule
- securities laws relating to preparing and issuing audit reports
- any professional accounting standard
Identify other compliance measures.The PCAOB can also require your firm to employ an independent monitor. The monitor’s job is to observe your firm and report violations, which might lead to additional sanctions and proceedings.
- The PCAOB’s sanctions can be severe. For example, an Ernst & Young partner was banned from practicing with any registered firm for three years and fined ,000 for faking audit documents.Other fines have reached a million dollars.
Video: Public Company Accounting Oversight Board
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