Speaker: 2018 Was Slower Year for PCAOB, But Expect Ramp-Up in 2019

Chris Gaetano
Published Date:
Nov 8, 2018

The Public Company Accounting Oversight Board (PCAOB) has been a little more quiet than usual this year, but don't expect that calm to last; a speaker at the Foundation for Accounting Education's Auditing Standards Conference today said that she expects the board to ramp up activity next year. 

The speaker, Wendy B. Stevens, leader of the Quality and Risk Management Practice division at Mazars USA, drew her comments from her experience as a member of the board's Standing Advisory Group. She noted that the past year has seen a great deal of turnover at the PCAOB. First of all, she said, there are five entirely new board members, including the chair, all of whom have spent time getting used to the responsibilities of their new positions. 

"Think of any type of entity with a board that wipes the slate clean with all new people. It takes time. They have never worked with each other, and they have also embarked on quite a big activity in trying to figure out a strategy on how they move forward," she said. 

Adding on to that challenge, she said, were several key staff departures. The board this year has seen the exits of longtime staff members such Claudius Modesti, who had led the Division of Enforcement; Martin Baumann, who had been chief auditor; as well as Helen Munter, who led the Division of Registration and Inspections. Stevens also said that there has been significant turnover within the staff in general. 

Consequently, she said that there have been fewer PCAOB initiatives this year, in contrast to previous years, which produced major projects such as the revised auditor reporting model, and the Form AP, through which firms must identify audit engagement partners. One of the board projects this year was the strategic plan. The board releases such a plan each year, but this was the first time the new board went through the process, which involved speaking with a variety of different stakeholders about their concerns. She said one of the most common responses the board received from stakeholders had to do not with the inspection process itself but with the final report, particularly its timing. 

"It seems that they're publishing things now that took place five years ago, and are the lessons really relevant at that point? Any firm that has had an enforcement action has probably been fighting that battle for five years and has corrected those items and moved on to other items," she said. 

The PCAOB for its part, she said, aims to shorten the time frame to make the letters more relevant. 

The other major project was the PCAOB's research agenda. As with the strategic report, this is the first time it has been done with an entirely new board. While Stevens said that firms were hoping that many of the items from previous research agendas would have been turned into consultation papers or proposed standards by now, this has not been the case. Therefore, she said, the items on the agenda were not a surprise, as they were the same items that the PCAOB has been talking about for a while: quality control, data and technology, other information, non-GAAP measures, noncompliance with laws and regulations, and communications with audit committees on audit independence. Stevens  did say, however, that the board expects to release two new proposed standards before the end of the year: on auditing accounting estimates and on the use of specialists. 

But Stevens pointed out a more informal change that seems to have happened this year. The PCAOB, she said, separated smaller firms, the type that are inspected every three years, into two categories: larger smaller firms, and truly small firms. She said the board has now started inspecting the larger smaller firms every two years. But because "there has been a tremendous amount of turnover at the PCAOB," she said that its inspection teams are "not as robust" as they were. "They are still doing inspections," she noted; "they are out in the field for sure now." 

Still, Stevens expects  that there will be a change in the next year. She said that in the past few years, there has not been as much focus on quality control systems, despite repeated public announcements that this was going to be an area of concentration, but she expects that the PCAOB will actually follow through this year. 

"No one this year said they noticed [a focus on quality control,] but they spent the whole year talking about how that will be a focus," she said. "I do suspect in 2019 reviews will return to the quality control documents."

Similarly, she said, the PCAOB talked a lot recently about a failure to pick appropriate sample sizes but didn't seem to do much around that area, and so she believes that this coming year the board will probably follow through. She said that inspections in this area will focus not so much on the sample size itself but more on the consistency from job to job. 

So while procedures have moved a little slowly at the PCAOB, she said practitioners should not expect that trend to continue. 

"We can never lose sight that this is a government agency, though, so the pace of change might not be as quick as if it was a private organization, but the intent is still there," she said. "They do intend to make these changes."

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