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PCAOB Inspection Reports to Include Auditor Independence Section

S.J. Steinhardt
Published Date:
May 3, 2023

iStock-519089329 Audit

The Public Company Accounting Oversight Board (PCAOB) has added a new section on auditor independence to its inspection reports, the board announced.

The added section will “increase transparency by making publicly available more information that is relevant, reliable, and useful for investors and other stakeholders,” the PCAOB stated in its announcement.

"We are committed to making our inspection reports as valuable as possible for investors, audit committees, and others, and today we take another significant step in advancing that goal by shining a greater light on independence violations and more," said PCAOB chair Erica Y. Williams. "These enhancements will provide relevant information that investors have asked for and support improvements in overall audit quality."

The enhanced inspection reports will include the following:

● A new section of the report focused on independence violations: Reports will feature a new independence section (Part I.C) that will discuss instances of noncompliance with PCAOB rules related to maintaining independence, as well as potential noncompliance with U.S. Securities and Exchange Commission (SEC) independence rules.

● More information related to fraud procedures and the identification and assessment of the risks of material misstatements: Reports will expand Part I.B to include deficiencies related to AS 2401, Consideration of Fraud in a Financial Statement Audit, and AS 2110, Identifying and Assessing Risks of Material Misstatement.

● More commentary: Reports will provide additional commentary in Part I.A for certain situations, such as whether the audit was the firm’s first audit of the issuer or whether the firm had identified significant risks, including fraud, for areas in which PCAOB inspection staff identified deficiencies.

● New graphs: For annually inspected firms, reports will include charts to clearly show firm and engagement partner tenure.

“These enhancements will further drive audit quality and make our inspection reports even more useful for the public,” said George R. Botic, director of the PCAOB’s Division of Registration and Inspections. “We are especially pleased to provide more information on auditor independence, which is essential to audit quality and underpins the objectivity, credibility, and integrity of the audit.”

This new section will appear in reports for PCAOB inspections completed in 2022. Eight inspection reports were released yesterday.

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