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What is the Difference Between PCAOB and GAAP

Accounting and auditing standards play an integral role in maximizing the efficiency of financial regulations and ensuring maximum safety. 


US Public Company Accounting Oversight Board (PCAOB) is one of the world’s many accounting watchdogs that ensure the accounting procedures of a company follow the set standards.   


However, it does not mean that PCAOB itself has not been a part of any controversy. In fact, a lot of experts have raised questions about the legitimacy of PCAOB as the standard organization that sets financial reporting regulations. 


Importance of Reliability

A critical question that is raised about PCAOB and Generally Accepted Accounting Principles, or GAAP, is their ability to ensure maximum reliability of the financial statements. 


PCAOB auditors are responsible for checking whether the financial statements comply with the US GAAP. Even though PCAOB and GAAP are formulated in the USA, they also set international accounting standards and principles. 


This is the primary reason why a lot of professional accounting services in Malaysia also pay attention to making sure these principles are followed while performing accounting and auditing functions.  


A major concern associated with PCAOB auditors and any auditor, in general, is the fact that auditors are typically paid by the companies, due to which managers and supervisors tend to have a lot of influence in the auditing process. 


US GAAP highlights the significance of an independent and transparent audit, but PCAOB does not ensure that any concrete steps are taken to keep the auditors unbiased. 


If the PCAOB auditors are influenced by a company either directly or indirectly, it can severely impact the quality of the auditing process. 

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Both US GAAP and PCAOB standards are similar in the way that they focus on bringing transparency and reliability. 


However, GAAP is more of a generalized accounting framework that can be used by anyone, such as accounting services in Malaysia, to cater to their own specific accounting requirements. 


It is the responsibility of the PCAOB to implement such accounting standards. Since investors don’t know about the time and resources an auditor puts into auditing a company’s financial statements or compliance with GAAP, it creates the issue of a lack of transparency.  


Generally, most of the auditor’s reports only provide investors with the minimum information related to the company’s compliance with GAAP. This kind of information is not enough for investors to make critical business decisions. 


People who support the presence of PCAOB as a watchdog accounting body say that having a public regulator is enough to increase the transparency of an audit. A public regulator will ensure auditors are working as per the set standards. 


On the other hand, critics of PCAOB say that PCAOB auditors do not have enough expertise and incentives to determine the quality of the auditor’s work, so it is not possible to achieve maximum transparency. 

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Different academic studies and statistics show that PCAOB audits are good for both companies and investors. Organizations in which PCAOB auditors did not find any significant errors or mistakes are able to raise more external capital. 


On the other hand, companies that do not pass the PCAOB audits and do not comply with US GAAP are more likely to suffer from accounting fraud and financial scandals. 


As a result, the significance of relying on professional accounting services in Malaysia cannot be understated to prevent such issues. 


Key Differences Between PCAOB and US GAAP

The following are the major differences between PCAOB and US GAAP:

Difference US GAAP PCAOB
Provides a general framework that can be adopted by different organizations around the world
Has strict rules
Concern Period
At least one year
One year from the date of the accounting year being audited
Accounting Function
Mainly deal with external audits to bring transparency and reliability to financial documentation
Flexible since they also deal with the internal accounting functions of a company.
Types of Risks
Deals with a wide range of risks, including operational and strategic risks
Mainly limited to auditing and accounting risks

All in all

The bottom line is that both PCAOB and US GAAP are vital for financial transparency and reliability. Professional accounting services in Malaysia consider all of such international standards to provide the best possible accounting and auditing services. 

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