PCAOB Outlines Key Inspection Priorities

By:
Chris Gaetano
Published Date:
Aug 31, 2017
Inspector

The Public Company Accounting Oversight Board (PCAOB), in a recent staff inspection brief, outlined areas that it will be paying particular attention to over the next year. These include: 

* Recurring audit deficiencies - Audit areas in which the most frequent and recurring audit deficiencies were identified in previous inspections, including procedures performed related to the audit of internal control over financial reporting, assessing and responding to risks of material misstatement, and auditing accounting estimates.

* Economic factors - Audit areas affected by factors related to current economic conditions, including Brexit and its effect in the European financial sector, the continued high rate of merger and acquisition activity, the search for higher yielding investment returns in a low interest rate environment, and the fluctuations in oil and natural gas prices.

* Financial reporting areas - Audit areas that may involve significant judgment from management and/or auditors, such as the auditor’s consideration of the entity’s ability to continue as a going concern, and income tax disclosures.

* New Form AP reporting requirements - Firm implementation of new PCAOB audit rules and related amendments designed to provide investors and other financial statement users with information about engagement partners and accounting firms that participate in audits of issuers.

* New accounting standards - Changes firms may have made in their processes and/or the procedures that firms plan to undertake in light of new accounting standards issued by the Financial Accounting Standards Board (“FASB”) related to revenue recognition and lease accounting. For certain issuer audits, Inspections staff is discussing with the auditor matters related to the audit of the issuer, including how it is addressing pending accounting changes with the issuer.

* Multinational audits - Work performed by other firms at the request of the principal auditor (“referred work engagements”), as well as audit work performed by the principal auditor with respect to the use of the work of other auditors.

* Information technology - Auditors’ use of software audit tools in the audit, and audit procedures performed to assess and address risks of material misstatement to the financial statements posed by cybersecurity.

* Firm’s system of quality control - Policies and procedures for (1) identifying the “root causes” of audit deficiencies and positive quality events, (2) monitoring and maintaining independence, (3) performing engagement quality reviews with due professional care, and (4) applying professional skepticism throughout the audit.

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