The US’ Public Company Accounting Oversight Board (PCAOB) plans to increase focus on fraud-related audit procedures, continue prioritising risks related to material digital assets, and continue selecting audits in the financial services sector for inspection.
The priorities established in the most recent PCAOB staff report follow an increased deficiency in 2021 inspections and increased comment forms in 2022 inspections, according to PCAOB chair Erica Williams.
Williams said: By staying ahead of new and emerging risks, our inspections plan will hold firms accountable and drive improvements in audit quality for investors.”
Last year, the PCAOB found a year-over-year increase in the number of audits with deficiencies at audit firms that the PCAOB inspected in 2021. Williams said higher deficiency rates in 2021, coupled with increased comment forms for 2022, were a warning signal. She challenged the audit profession to sharpen its focus on improving audit quality and protecting investors.
The complete list of 2023 inspection priorities outlined in the report includes:
- Risk of fraud
- Auditing and accounting risks
- Risk assessment and internal controls
- Financial services specific considerations
- Broker-dealer specific considerations
- M&A, including de-SPAC transactions
- Digital assets
- Use of the work of other auditors
- Quality control (particularly talent retention and its impact on audit quality, and independence)
- Other areas of inspection (critical audit matters, cybersecurity, and use of data and technology in the audit)
The report notes the target team of inspectors, who execute in-depth reviews across audit firms each year, will focus its work in 2023 on audits that include risks related to digital assets, first year audits, multi-location audits, and significant or unusual events or transactions. As part of ongoing efforts to enhance inspections, today’s report also says inspectors will expand the number of audits they review for certain annual firms.
The Spotlight can be found at the PCAOB’s Staff Publications page, along with other resources aimed at fostering understanding of the PCAOB’s and its staff’s activities and observations.
At the end of last month, PCAOB issued for public comment a proposed new standard, AS 1000, ‘General Responsibilities of the Auditor in Conducting an Audit’. The Board requests public comment on the proposal by 30 May, 2023.