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PCAOB Chair Highlights Significant Auditing Deficiencies Found During Inspections

S.J. Steinhardt
Published Date:
May 5, 2023

Public Company Accounting Oversight Board (PCAOB) inspectors have been uncovering an increasing number of problems at auditing firms, Chair Erica Williams told attendees at  Baruch College's annual financial reporting conference.

In a conversation with Senior Associate Dean Paquita Davis-Friday, Williams discussed a wide range of topics, such as the PCAOB's work to inspect and investigate completely in China, its 2023 inspection priorities and the state of audit quality.

“We found that audits with Part 1.A deficiencies increased 5 percent in our 2021 inspections to 34 percent, compared to 29 percent in the 2020 inspections, and that means that a third of the audits we inspected had deficiencies of such significance that PCAOB staff believe that audit firms fail to obtain sufficient and appropriate audit evidence to support their opinions on public companies' financial statements or internal controls over financial reporting," she said, Accounting Today reported. "Additionally, comment forms for both U.S. and non-U.S. firms increased further during our 2022 inspections. The final inspection reports for the 2022 inspections have not yet been released, but what we do know is that the comment forms usually result in inspection findings in our reports. That means that the 2022 reports are likely to have even more deficiencies than the 2021 reports. Together these facts present a really troubling warning sign."

Acknowledging that the 2023 inspections are still underway, and it would be too early to comment on those results, she said that that that auditors can take actions to reverse this “troubling trend." She added that she has “called on audit firms to take actions necessary to improve audit quality because…quality audits protect people and that's what this is all about."

Williams discussed some of the problems that firms had told her that they encountered over the past year, such as the impact of the COVID-19 pandemic on remote auditing, and how the war for talent is making it difficult to maintain stable audit teams and provide training to new hires. 

Saying that “these factors are no longer new, and no one should be caught off guard by the challenges that they present," she emphasized that "[f]irms have a responsibility to design and implement solutions to restore and maintain audit quality; 34 percent of audits with at least one with at least one Part 1.A finding cannot be explained away by the pandemic, and some of the audit efficiencies that were identified have been recurring for many years, well before COVID-19.”

The PCAOB has made enforcement a key goal in its strategic plan. It recently added a new section on auditor independence to its inspection reports.

"The PCAOB imposed our highest annual enforcement penalties ever in 2022, and we've doubled the number of enforcement actions that have been brought from the previous year," Williams said, "The numbers in 2022 clearly speak for themselves."

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