American Institute of Certified Public Accountants (AICPA) Practice Exam

What legislation resulted in the creation of PCAOB?

1. Financial Reporting Act

2. Gramm-Leach-Bliley Act

3. Sarbanes-Oxley Act of 2002

4. Public Company Accounting Reform Act

The correct answer is: Sarbanes-Oxley Act of 2002

The creation of the Public Company Accounting Oversight Board (PCAOB) is directly linked to the Sarbanes-Oxley Act of 2002. This legislation was enacted in response to numerous financial scandals that revealed serious deficiencies in corporate governance and accounting practices, particularly among public companies. The PCAOB was established as part of this act to oversee the audits of public companies, ensuring that audit standards are upheld and enhancing the reliability of financial reporting. The Sarbanes-Oxley Act aimed to restore investor confidence by introducing stringent reforms designed to improve corporate financial disclosure and protect investors from fraudulent accounting practices. By establishing the PCAOB, the act created an independent regulatory authority tasked with overseeing audits and enhancing the quality of financial reporting. This framework was essential in advancing the public’s trust in financial statements and the integrity of audits following the high-profile collapses of companies such as Enron and WorldCom. The other legislation mentioned does not specifically relate to the creation of the PCAOB. While the Gramm-Leach-Bliley Act and the Financial Reporting Act played significant roles in the broader regulatory landscape, they do not pertain to the establishment of the PCAOB. The Public Company Accounting Reform Act is an older name sometimes associated with the Sarbanes-Ox