When Auditors Fail to Audit: Themes from PCAOB Enforcements

Terri L. Herron, PhD, CPA, CISA, and David L. Gilbertson, PhD, CPA, CMA

The practice of auditing is rapidly changing, and CPAs who audit public companies now face a regulatory environment that has changed considerably in the past five years. The inspection and enforcement reports issued publicly by the Public Company Accounting Oversight Board (PCAOB) provide an opportunity for CPAs to learn from the mistakes of their predecessors. We often learn best when we learn by example. Since issuing its first disciplinary action in May 2005, the PCAOB has now disciplined 63 CPAs or firms as a result of its enforcement program. The Sarbanes-Oxley Act of 2002 (SOX) mandated that reports on these disciplinary sanctions be made public. The authors believe that a review of the lessons learned in these disciplinary reports will enable CPAs to improve audit quality and avoid costly mistakes in the future.