Final answer:
The Public Company Accounting Oversight Board ensures the accuracy and integrity of corporate financial reporting by inspecting, regulating, and enforcing auditing standards to protect investors following several high-profile accounting scandals.
Step-by-step explanation:
The Public Company Accounting Oversight Board (PCAOB) plays a significant role in corporate governance, particularly in the oversight of auditing firms hired by companies to review their financial records. In the wake of massive accounting scandals like those involving Enron and WorldCom, the PCAOB was established by the Sarbanes-Oxley Act of 2002.
Its primary purpose is to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB inspects, investigates, and enforces auditing standards to ensure that companies provide truthful financial information, giving confidence to investors and maintaining the integrity of the U.S. financial markets.
The Lehman Brothers case is an example where corporate governance failed, indicating the importance of effective oversight. Large mutual funds and pension funds also rely on such governance to make informed investment decisions. The PCAOB serves to prevent such failures by monitoring and regulating auditing processes. These actions endeavor to prevent fraudulent financial reporting and to increase investor protection and confidence in public corporations.