28. Allen Company's shares are freely traded to the public in the stock market. The financial statements of Mike Company were recently audited by an external and free firm, as follows of the audit firm have provided independent audit reports of Allen Company. Which board is responsible for overseeing this work done by the audit firm?
Answer: B
The Public Company Accounting Oversight Board (PCAOB) is responsible for overseeing the audit work of firms auditing publicly traded companies like Allen Company.
The PCAOB oversees the audits of public companies to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.
A) State Department of Business Regulation
This option is incorrect as the State Department of Business Regulation primarily handles state-level business regulations and does not have jurisdiction over the auditing of publicly traded companies. Their focus is more on compliance with state laws rather than the oversight of audit firms.
B) Public Company Accounting Oversight Board (PCAOB)
This option is correct because the PCAOB is specifically established to oversee the audits of public companies and ensure that audit firms comply with professional standards. Their role includes setting auditing standards and inspecting audit firms, making them the responsible body in this context.
C) Securities and Exchange Commission (SEC)
While the SEC regulates the securities industry and oversees the enforcement of securities laws, it does not directly oversee the audit processes. Instead, it relies on the PCAOB to ensure that audits of public companies meet required standards.
D) Financial Accounting Standards Board (FASB)
This option is incorrect as the FASB is responsible for establishing accounting standards in the U.S. but does not oversee audit firms or their work. Their focus is more on the creation and improvement of financial accounting standards rather than the auditing process itself.
Conclusion
The PCAOB is the definitive body responsible for overseeing audit firms that conduct audits for publicly traded companies like Allen Company. Other options, while related to finance and regulation, do not have the specific mandate to oversee audit practices, making the PCAOB the correct choice in this context.