The shareholders of Escalante Company are suing the external auditors of the company. The shareholders are upset because the management of Escalante Company produced overly positive financial statements and used these financial statements to lure new investors. Escalante Company is now bankrupt, the managers are facing prison time, and the external auditors are in monetary damages settlement talks with the shareholders of Escalante Company.

What role could the Public Company Accounting Oversight Board (PCAOB) have played in avoiding this catastrophe?

• Provide ethics training for the top managers of the company
• Enforce compliance with the Foreign Corrupt Practices Act
• Conduct an inspection of the external audit firm
• Review the tax returns of the company