“Given the importance of auditor independence to the public’s trust in the quality of audit services, and the history of deficiencies identified, independence remains a priority in our inspections,” the PCAOB said. “In 2023, we began to perform procedures to review compliance with certain independence requirements on every audit firm we select for inspection and on every engagement that we review.”

The PCAOB report said that auditor independence is a “critically important” subject not only for the PCAOB and audit firms but also for those who invest in a public company or use broker-dealer services. It said that investors expect, and both SEC and PCAOB rules require, that audits are performed by skilled professionals who can exercise objective and impartial judgment and maintain their independence from the public companies or broker-dealers they audit. 

“Therefore, compliance by all personnel and partners with SEC and PCAOB standards and rules and an audit firm’s internal process to preserve independence from their audit clients, in fact and in appearance, is fundamental to investor confidence and to building a strong audit firm culture of integrity and audit quality,” the PCAOB explained.

In May 2023, the PCAOB announced that it enhanced its inspection reports by adding a new section on auditor independence as well as a range of other improvements that increase transparency by making publicly available more information that investors and stakeholders will find "relevant, reliable, and useful." The PCAOB explained that this new section discusses instances—some of which were revealed by an inspection while others were self-identified by audit firms—of potential noncompliance with SEC rules or instances of noncompliance with PCAOB rules, if there were any, related to maintaining independence.

Due to the importance of auditor independence and the increase in the number comment forms on the subject issued from 2021 to 2023, the PCAOB enumerated five good practices that the staff has observed related to auditor independence. These are the following:

• Increasing the use of technology-based tools. Some audit firms increasingly use technology-based tools to promote early detection of potential personal independence violations.

• Enhancing the frequency of personal independence representations. Certain audit firms have increased the frequency for personnel to provide independence compliance representations to a quarterly or semi-annual basis. Also, to enhance the process, certain audit firms have tailored the representations based on personnel’s financial interests and/or services provided to audit clients.

• Enhanced processes. Certain audit firms employed an enhanced process that includes mandatory meetings with firm personnel skilled in independence matters to guide personnel through their financial holding disclosures, and those of close family members, to ensure proper considerations are given to reporting all financial holdings. During this process, disclosed financial holdings may be compared to supporting documentation, such as current account statements or tax filings, to verify the accuracy and completeness of reported financial holdings.

• Establishing disciplinary actions. Audit firms have put in place specific policies and procedures providing sanctions for personal independence policy violations including, but not limited to, failure to timely complete semi-annual or quarterly personal independence representations. The procedures include audit firms assessing the severity, frequency, and nature of personal independence policy violations and determining disciplinary actions commensurate with the violations. Disciplinary actions may include financial sanctions, promotion deferrals, mandatory independence training, removal from issuer audit engagements, or required independence reviews in subsequent years.  

• Use of templates. Using a global template with standardized language for all audit engagement letters for clients subject to SEC and PCAOB independence standards and rules. This template has helped prevent the inclusion of indemnification clauses, contingent fees, and other prohibited fees or services in the engagement letters of “other auditors.