Final answer:
Auditors of public entities registered with the Securities and Exchange Commission must register with the Public Company Accounting Oversight Board. This requirement aims to increase investors' trust in financial reporting following several major accounting scandals, including those at Enron and WorldCom.
Step-by-step explanation:
True: Auditors of public entities registered with the Securities and Exchange Commission are indeed required to register with the Public Company Accounting Oversight Board (PCAOB). This requirement was established following a series of major accounting scandals in the early 2000s, involving companies such as Enron, Tyco International, and WorldCom. These incidents eroded public trust in the reliability of financial reporting by public companies, leading to the creation of the Sarbanes-Oxley Act in 2002. The act was designed to increase confidence in the financial information provided by public corporations and to protect investors from accounting fraud. One of the key provisions of Sarbanes-Oxley was the establishment of the PCAOB, which oversees the auditors of public companies to ensure that their audits are conducted with independence and rigor.
As part of their duties, the PCAOB ensures that auditors adhere to certain auditing and quality control standards. This independent oversight is part of a larger system of corporate governance, which includes not only the board of directors and auditing firms but also external investors, such as those managing mutual funds and pension funds. The Lehman Brothers case is an example where failures in corporate governance did not provide accurate financial information to investors, highlighting the importance of the PCAOB's role in investor protection.