The U.S. Audit Regulator, the Public Company Accounting Oversight Board (PCAOB), has released a report on its audit performance inspections over the past year. This time, 510 audits of 114 U.S. audit firms were inspected and 107audits of 39 non-U.S. firms. The main conclusions are as follows.
1. Regulators continue to record a significant number of deficiencies that recur from year to year.
2. In the case of companies that are inspected annually, the total number of deficiencies in 2020 decreased compared to the previous year. Some audit firms are audited every three years, some improvements were noted, although the situation is far from ideal, and the total number of deficiencies remains high.
3. On the positive side, the PCAOB notes many examples of good practice that can be used to improve audit quality.
As examples of good audit practices, the PCAOB cites:
- Measures taken by auditors in response to the COVID-19 pandemic, including increased training, shifted emphasis on consultations, changes in the policy of attracting new clients and continuing relationships with regular ones, etc.;
- real-time monitoring of in-process audit engagements;
- increased supervision of the work performed by specialists;
- wider use of practice aides to assist engagement teams in identifying risks when evaluating decisions made by managers of client companies;
- improved monitoring of workload of engagement quality reviewers, involvement of qualified experienced third-party engagement quality reviewers, when necessary;
- focused training, tailoring of work programs taking into account industry-specific risks.
The most common areas of U.S. audit deficiencies (consistent with past years) are:
- internal control over financial reporting;
- revenue accounts;
- accounting estimates;
- inventory;
- critical audit matters;
- auditor independence.