 Hello, and welcome to the session. This is Professor Farhad in which we would look at CPA questions that deal with the public, company, accounting, oversight board, or PCAOB. This topic is covered on the auditing CPA section exam, as well as an auditing course. Now, the reason we want to kind of make sure we understand the role of the PCAOB, because we want to understand there's a PCAOB and there's the AI CPA. I did some questions concerning the AI CPA, and now we're going to talk about the PCAOB. The first thing is you want to differentiate as this. The PCAOB deals with issuers. Issuers mean think of publicly traded companies that issue stocks to the public. When we are dealing with the AI CPA, we're dealing with non-issuer or private companies. And this is a confusing topic for many students. And because it's a confusing topic, the AI CPA will find easy time trying to trick you on the exam. So you have to know which rules apply to the AI CPA, which rules apply to the PCAOB. And going over the questions will help, but if you want more, visit my website to learn about this topic, because I do have a whole chapter about PCAOB versus AI CPA. As always, I'm going to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1,700 plus accounting, auditing, tax, finance, as well as Excel tutorial. If you like my lectures, please like them, share them, put them in playlist if they benefit you. It means they might benefit other people. Connect with me on Instagram. On my website, farhatlectures.com, you will find additional resources to supplement your CPA exam, your auditing course, advanced accounting, intermediate, you name it, your accounting courses, as well as your finance courses. I strongly suggest you check out my website. Let's take a look at the first question. Under the PCAOB, tax services may be provided to an issuer-audit client. So again, issuer means publicly traded company. They issue stocks to the public. One, without pre-approval from the audit committee. So do you need approval or you don't need an approval to provide tax services? The first thing you need to know is this. If you are allowed to provide a tax service, you need approval. So without pre-approval, it's not gonna work. You need approval. So before we cross out one and we cross out C. Provided that the tax services do not include aggressive tax transaction. Can you provide tax services as long as they don't involve aggressive tax transaction? And the answer is yes, but you need approval. Okay, so the approval is still there. You would need the approval, not approval. You need approval. But the tax services cannot be aggressive. In other words, you cannot take an inserting position or an aggressive position. Simply put, basically, basic tax services, that's fine. So the answer is two only. So you need approval and it cannot be aggressive tax transaction under the PCAOB. Let's take a look at the second question. The PCAOB required a registered CPA firm to do what? Okay, one, provide concurring or second partner review of each audit report. And the answer is yes, what does that mean? It means if you are conducting an audit, there's always a second partner who's reviewing the audit either simultaneously, provide a concurrent or a second partner after each audit. So someone at the firm is looking over your shoulders. So one will stay, A is out, B will stay, C will stay and B will stay. Two, describe in the audit report the extent of the testing of the issuers internal control structure and procedure. Do you do that in the audit report? And the answer is yes, under the PCAOB for publicly traded companies, you have to describe in the audit report the extent of testing of the issuer. So one and two, B will stay, C is out. Actually, by process of elimination, it's one and two because we don't have one, two and three, but let's make sure that three is not correct. Maintain all the documentation. For sure you have to maintain all the documentation for a minimum of five years. And the number here is incorrect. It's the minimum of seven years. And the reason why they make a big deal about all the documentation is because Arthur Anderson, what they did is they shredded their documentation. They simply shred them when they get caught when the Arthur Anderson fraud broke out. What they did is to hide, they started to shred. Therefore, he can't shred documents anymore. You have to keep them for seven years. So that's why. So here you just have to know it's seven years. And you might get a question exactly about this. How many years do you need to keep your documentation? There's a good chance you might get something like this because what else can they ask you about the PCAOB? Well, they could ask you some facts and this is one of the facts. Under Sarbanes-Axley, registered audit firms are required to report which of the following information to the audit committee of audited corporation. Now also Sarbanes-Axley, it's part during the same era of the PCAOB. Actually, Sarbanes-Axley is these two senators that created this whole thing. So that's why it's called Sarbanes-Axley. So under Sarbanes-Axley, the registered audit firms are required to report which of the following information to the audit committee of the audited corporation. So what are they required to report to the audit committee? A schedule of unadjusted audit differences? Do you think they'll have to do that? I would say yes. I would say they will have to show them any unadjusted schedule of unadjusted audit differences. It hasn't been adjusted and it's a difference between what we think and what the client is. So if you're thinking about an account balance, we think it's for account, for example, account receivable, you think it should be 8 million. The client is saying it should be 8.5 million, okay? So there is a schedule of unadjusted audit differences. There's a half a million of audit differences. Will you communicate this information? Yes, any material amount, any serious communication, it has to be done through the audit committee. So one is will stay, A will stay, B is out, C will stay, D is out. The treatment that the audit firm prefers regarding alternative accounting treatment discussed with the corporation management. Do you have to tell them about alternative accounting treatment that were discussed? Believe it or not, you have to do that too. For the record, so you have to do both, C. So the treatment that the audit firm prefers regarding alternative accounting, you have to let them know. This is our preferences and we discussed this with the corporation. This is what how things should be done. Let's take a look at these questions. According to the PCAOB, which of the following must be rotated off and audit engagement every five years? So simply put, if you're a partner and you work on the firm for a period of time, five years, you have to leave that engagement. Go do something else. Just you can be more than five years on a particular engagement, okay? Lead partner, will they have to take off? And also they have to take off for five years. And the answer is yes. The lead partner would need to. Because they're the lead partner, they got to know the business. They're too much invested after five years. So you know what? You need to take some time off. So we keep on and we keep C. Reviewing partner, will the reviewing partner also need to stay away from this engagement? And the answer is yes. And the reason for these rules, once again, to strengthen objectivity and independence between the auditor and the client. So after five years, you bring a new partner with new sets of eyes and they would look at the financial statements. They would look at the procedures differently. They would look at the evidence differently. That's the whole purpose. Rather than staying with the client for a decade or so where you can have, you become, you and the client becomes technically one. And that's what you're trying to avoid in all these roles. Let's take a look at this question. On purpose, I had this question here. It's the last questions, but it's on purpose. This is the last question. For a firm that's engaged to audit and is concerned about independence, tax services related to confidential or aggressive tax transaction would be a violation of what? Remember when we started this session, I started with the first question about taxation. And I told you, you cannot, the PCAOB does not allow you to take aggressive tax transaction. So definitely your independence will be impaired. So it's a violation of the PCAOB. So if two is out, B is out, C is out. Now we have to know if you are auditing, if you are auditing a non-issuer and following the AI CPA standard, can you provide aggressive tax services? And the answer is yes. Under the AI CPA, it doesn't impair your independence. Therefore, the answer is yes. Therefore, the answer is A1 only is the answer. As always, I'm gonna remind you to visit my website farhatlectures.com for additional resources. Your CPA investment is 20 to 30 years, if not more. It's a huge investment. It's gonna pay different. Whether you're taking a review course or not, you should be taking a review course actually. I misspoke. But if you need additional resources, I do have lectures, lessons, tutorial about practically all, not all, but most of auditing, FAR, TAX and BEC on my website. I strongly suggest you check it out. Don't shortchange yourself. And if you're studying for your accounting courses, my website can also help you improve your performance. Accounting is worth it. Invest in your career, invest in your life, stay safe and check out farhatlectures.com for additional resources.