This paper provides an overview of the current regulatory frameworks for financial reporting
and auditing in the UK, US and Germany. During the last years these frameworks were
noticeably changed. These changes arose especially from political interest in accounting
regulation following the Enron collapse. The main change in the US was the introduction of
the Sarbanes-Oxley Act containing strict regulations for auditors, including their
responsibilities and services. It also contains a list of prohibited audit activities, the so-called
“non-audit” services. The main feature of the Act was the creation of an oversight board to
regulate and control auditors of public companies. Thus the “Public Company Accounting
Oversight Board” was established. The PCAOB is a private-sector non-profit overseer,
supervised by the US Securities Exchange Commission (SEC) which regulates basically
anything related to the securities market.
Following the collapse of Enron and the turbulence in the UK markets that followed, a review
of financial regulation in the UK was ordered, covering for example auditor independence,
corporate governance, financial reporting and auditing standards and accountability of audit
firms. In order to restore credibility in UK accounting the Financial Reporting Council (FRC),
an independent private sector body funded by the accountancy profession, was set up. The
FRC has several subsidiary bodies, including the Professional Oversight Board (POB)
providing independent oversight of the regulation of the auditing profession.
The German Auditor Oversight Commission (AOC) was established according to the Auditor
Oversight Law. It is in charge of the public oversight of all activities of the German Chamber
of Public Accountants (WPK) with respect to statutory auditors. The Commission has the
ultimate responsibility in the areas of licensing, registration, disciplinary investigations and
quality assurance, all with respect to members of WPK entitled to provide statutory audit
services (WPK, n.d.).
It is argued that these new regulations impose another layer of bureaucracy with significant
costs for very little apparent gain. But ethical issues surrounding the public’s perception of
auditor performance need to be addressed, not just for the sake of the profession, but for the
efficiency and effectiveness of capital markets in general (Malthus and Scoble, 2005).
Table of Contents
1. EXECUTIVE SUMMARY
2. INTRODUCTION
3. THE AUDIT OVERSIGHT
3.1 OVERSIGHT SYSTEM IN THE US
3.2 OVERSIGHT SYSTEM IN THE UK
3.3 OVERSIGHT SYSTEM IN GERMANY
3.4 COMPARISON OF THE US, UK AND GERMAN SYSTEMS
4. EVALUATION
5. CONCLUSION
Objectives and Topics of the Paper
This paper examines the regulatory responses to financial scandals in the United States, the United Kingdom, and Germany, focusing on the establishment of independent oversight bodies for the auditing profession. It explores how these nations transitioned from self-regulation to more rigid supervision to restore investor confidence and enhance financial reporting integrity.
- Evolution of audit oversight mechanisms post-Enron
- Comparative analysis of regulatory frameworks in the US, UK, and Germany
- Functions and responsibilities of oversight bodies like the PCAOB, FRC, and AOC
- The economic impact of compliance costs versus the benefits of increased financial transparency
Excerpt from the Book
3.1 Oversight system in the US
The Enron bankruptcy, “which was the largest bankruptcy in history and resulted in substantial financial losses to investors and pensioners, has dramatically heightened the public attention given to those concerns, posing a critical threat to investor confidence in financial information generally” (SEC, 2002). Serious questions were raised about the credibility and reputation both of company directors and the accounting profession. In particular, the role of the external auditor and the relationship auditors have with their clients were called into question in a fundamental way (Malthus and Scoble, 2005).
“In the US these issues and others associated with the systematic failure are being addressed through the provisions of the Sarbanes-Oxley Act (SOX)1, which was passed in July 2002 to restore confidence in the US market”(Fearnley and Beattie, 2004). The law primarily regulates rules for the improvement of the Corporate Governance (guidelines for good and responsible management), which makes it compulsory for the management of capital market-oriented enterprises to ensure the completeness and correctness of the data given in the annual accounts. Thus the CEOs of American Public Companies have to provide a signature stating that their accounting is correct and that they are aware of the fact that they are committing a criminal offence, if this is not the case.
Summary of Chapters
1. EXECUTIVE SUMMARY: This chapter provides an overview of the regulatory changes in the UK, US, and Germany following the Enron collapse, highlighting the introduction of the Sarbanes-Oxley Act and the establishment of new oversight bodies.
2. INTRODUCTION: The introduction outlines the history of the accounting profession's self-regulation and explains how corporate failures necessitated a move toward independent oversight to protect investor confidence.
3. THE AUDIT OVERSIGHT: This section details the specific regulatory bodies and frameworks in the US, UK, and Germany, providing a comparative analysis of their differing approaches to auditing supervision.
4. EVALUATION: This chapter assesses the effectiveness and economic impact of the new regulations, discussing both the benefits of increased control and the criticism regarding high compliance costs.
5. CONCLUSION: The final chapter summarizes the global trend toward stricter auditing standards and reflects on the ongoing challenge of balancing rigorous regulation with economic efficiency.
Keywords
Audit Oversight, Sarbanes-Oxley Act, PCAOB, FRC, Auditor Independence, Financial Reporting, Corporate Governance, Regulation, Investor Confidence, Enron, Compliance Costs, Statutory Audit, Public Accountability, Financial Scandals, Accounting Profession.
Frequently Asked Questions
What is the primary focus of this paper?
The paper provides a comprehensive overview of the current regulatory frameworks for financial reporting and auditing in the UK, US, and Germany, specifically analyzing the shift toward more formal audit oversight.
What prompted the shift in audit regulation?
The shift was primarily driven by political and public pressure following major financial scandals and corporate collapses, such as Enron, WorldCom, and Parmalat, which undermined investor confidence.
What is the central research objective?
The objective is to describe and analyze the developed oversight systems for external auditors in the UK and Germany and compare them with the standards established in the USA.
Which scientific method is utilized?
The paper utilizes a comparative analysis method, evaluating regulatory frameworks, institutional bodies, and the public/professional discourse surrounding them.
What is discussed in the main body?
The main body examines the specific oversight systems in the US (PCAOB), UK (FRC), and Germany (AOC), and provides an evaluation of the pros and cons of these regulations regarding costs and organizational performance.
Which key terms define this work?
Key terms include Audit Oversight, Sarbanes-Oxley Act, Investor Confidence, Corporate Governance, and Auditor Independence.
How does the US approach to oversight differ from the European approach?
The US replaced self-regulation with a strong, centralized statutory body (PCAOB), whereas the UK and Germany generally opted to integrate independent oversight bodies while maintaining aspects of professional self-regulation.
What is the "non-audit" service issue mentioned in the text?
The paper discusses the conflict of interest that arises when auditors perform non-audit services for their audit clients, leading to prohibitions under regulations like the Sarbanes-Oxley Act.
- Arbeit zitieren
- Ecaterina Volosin (Autor:in), 2007, The oversight of the audit profession, München, GRIN Verlag, https://www.grin.com/document/116910
