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The accounting cop is now on the beat. In May the Public Company Accounting Oversight Board began examining the firms that audit public companies. Inspections for 2004 should be completed by November. The board was created by Congress two years ago as part of the Sarbanes-Oxley Act. It will review about 5 percent of public company engagements by the Big Four accounting firms, which equates to about 500 audits. It also will examine about 10 � 15 percent of engagements at midsize firms, and review the audits completed by a select number of small firms. Sarbanes-Oxley requires the oversight board to inspect big accounting firms annually and smaller ones at least every three years. Besides detecting fraud, the inspections will also monitor the adequacy of the firms’ documentation, how auditors assess risk, and their compliance with professional auditing and accounting standards. Inspectors also will focus on whether compensation and other business practices discourage accountants from uncovering fraud. As of early May, 840 accounting firms had registered with the board, including 805 domestic and 18 Canadian auditors, and 17 from elsewhere. All foreign auditors that have a hand in crafting financial statements or doing any accounting work at a company listed on a U.S. stock exchange must register with the board.

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