The shareholders  of Escalante company are suing the external auditors of the company. The shareholders are upset because the management of Escalante company produced overly positive financial statements and used these financial statements to lure new investors. Escalante company is now bankrupt, the managers are facing prison time, and the external auditors are in monetary damages settlement talks with shareholders of Escalante company. What role could the public company accounting oversight board (PCAOB) have played in avoiding this catastrophe?

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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The shareholders  of Escalante company are suing the external auditors of the company. The shareholders are upset because the management of Escalante company produced overly positive financial statements and used these financial statements to lure new investors. Escalante company is now bankrupt, the managers are facing prison time, and the external auditors are in monetary damages settlement talks with shareholders of Escalante company. What role could the public company accounting oversight board (PCAOB) have played in avoiding this catastrophe?

 

 

 

 

 

 

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Introduction

The Public Company Accounting Oversight Board (PCAOB) is a non-profit organization established by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB has several important functions, including setting auditing standards for public companies, inspecting public accounting firms to ensure compliance with auditing standards, taking enforcement action against auditors who violate standards, and disciplining auditors who fail to follow auditing standards. The role of the PCAOB in ensuring the accuracy and reliability of financial information provided by public companies and their auditors is crucial in protecting the interests of investors and preventing financial catastrophes like the one experienced by the shareholders of Escalante company.

 
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