Certified Public Accountants and Auditing Oversight Board (CPAAOB / 公認会計士・監査審査会)

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This entry sits under financial-regulators INDEX. Read it alongside FSA Supervision Bureau and Fsa Inspection Bureau for the supervisory boundary, and against Strategy Development and Management Bureau (FSA Strategy Development and Management Bureau) / FSA Planning and Coordination Bureau for the rule-making and policy interfaces. For the audit-firm side, anchor through Ey Shinnihon · Deloitte Touche Tohmatsu LLC (Deloitte Touche Tohmatsu) · Kpmg Azsa · PwC Japan LLC (formerly PwC Arata) (Big 4) and Taiyo Grant Thornton · BDO Sanyu Audit Corporation (BDO Sanyu) (mid-tier). License perimeter via Financial licenses.

1. Legal positioning

• Governing law: Certified Public Accountants Act, Article 35 (establishment of the Board), and the Act for Establishment of the Financial Services Agency ^•
• Affiliation: an attached organization of the Financial Services Agency (an external bureau of the Cabinet Office) — positioned not in parallel with the Supervision Bureau, the Strategy and Policy Bureau, or the Planning and Coordination Bureau, but as an independent oversight board ^•
• Headquarters location: Kasumigaseki, Chiyoda-ku, Tokyo (within the FSA main building) ^•
• Board composition: a chairperson 1 名 + up to 9 名 members, appointed by the Prime Minister with the consent of both Houses — composed of certified public accountants, legal practitioners, corporate-accounting practitioners, and persons of academic experience ^•

2.1 CPA Examination

• Conducting the short-answer examination (2 times a year) + the essay examination (1 times a year) ^•
• Appointment of examiners, preparation of examination questions, and pass/fail determination — exclusively operating the entry-point gate of Japan’s accounting profession ^•

2.2 Audit Firm Inspection

• Subjects of inspection:
  • Major audit firms (Big 4: Ey Shinnihon · Deloitte Touche Tohmatsu LLC (Deloitte Touche Tohmatsu) · Kpmg Azsa · PwC Japan LLC (formerly PwC Arata)) — in principle periodic inspection every 3 years ^•
• Scope of inspection: quality-control systems, individual audit engagements, independence, fraud response, IT controls ^•
• Publication of inspection results: annual publication of the “Case Examples of Audit Firm Inspection Results” and “Case Examples of CPA Audit Inspection Results” ^•

2.3 Quality Control Review

• A two-tier structure in which the CPAAOB additionally conducts monitoring of the results of JICPA’s quality control review (peer review) ^•

2.4 International cooperation

• A member of IFIAR (International Forum of Independent Audit Regulators) — a network of global audit-oversight authorities ^•

3. Linkage of inspection results with disciplinary action

In the flow of CPAAOB inspection / recommendation → the FSA Commissioner’s disciplinary decision, major disciplinary cases include the following (for details of each case, see the individual audit-firm pages):

• ChuoAoyama Audit Corporation (following the Kanebo window-dressing case, a 2 -month suspension of operations from 2006-07-01〜08-31 → renamed Misuzu Audit Corporation in 09-01 the same year, dissolved 2007-07 . PwC established Aarata Audit Corporation as the receiving body in 2006-06 ) — a symbolic case right after the CPAAOB’s launch
• Disciplinary action related to the Toshiba case against Ernst & Young ShinNihon LLC (now Ey Shinnihon) (2015-12-22, a 3 -month suspension of new-contract-conclusion operations [2016-01-01〜03-31] + a business improvement order + a surcharge of approx. 21 億円 — the first surcharge against an audit firm)
• Numerous improvement orders for deficiencies in the quality-control systems of mid-tier and small/medium audit firms

4. Division of roles with JICPA

5. Position in governance

• Differs in subject from the bank / securities / insurance inspection of the FSA Supervision Bureau (FSA Supervision Bureau) — the CPAAOB covers audit quality, the Supervision Bureau covers the financial institutions themselves ^•
• The FSA Inspection Bureau (Fsa Inspection Bureau) was merged into the Supervision Bureau in 2018 年, but the CPAAOB was not subject to that merger — it maintains its status as an independent oversight board ^•
• Relationship with the Business Accounting Council (a separate council of the Cabinet Office) — a division of labor in which the Business Accounting Council sets auditing standards and the CPAAOB inspects audit quality ^•

Related

• financial-regulators INDEX — parent INDEX
• FSA Supervision Bureau — supervision of the bank / securities / insurance entities themselves
• Fsa Inspection Bureau — the inspection function before the 2018 年 merger
• Strategy Development and Management Bureau (FSA Strategy Development and Management Bureau) — accounting-audit policy cooperation
• FSA Planning and Coordination Bureau — rule-making for the CPA Act / audit system
• Ey Shinnihon · Deloitte Touche Tohmatsu LLC (Deloitte Touche Tohmatsu) · Kpmg Azsa · PwC Japan LLC (formerly PwC Arata) — Big 4 inspection subjects
• Taiyo Grant Thornton · BDO Sanyu Audit Corporation (BDO Sanyu) — mid-tier inspection subjects
• Financial licenses — the regulatory boundary of the CPA Act / audit quality control

Sources

• CPAAOB official — https://www.fsa.go.jp/cpaaob/
• FSA “On disciplinary action, etc., against audit firms and certified public accountants,” Ernst & Young ShinNihon LLC (2015-12-22 administrative action: 3 -month suspension of new-contract-conclusion operations + business improvement order) — https://www.fsa.go.jp/news/27/sonota/20151222-4.html
• FSA “On the decision of a surcharge payment order against Ernst & Young ShinNihon LLC for false certification of financial documents” (surcharge of approx. 21 億 1,100 万円, the first surcharge against an audit firm) — https://www.fsa.go.jp/news/27/syouken/20160122-4.html
• ChuoAoyama Audit Corporation / Misuzu Audit Corporation (Kanebo window-dressing case, 2006-07-01〜08-31 suspension of operations, 2006-09-01 renaming to Misuzu, 2007-07 dissolution, PwC Aarata established 2006-06 ) — https://ja.wikipedia.org/wiki/みすず監査法人