Independence Gets Its Own Spot in PCAOB Audit Inspection Reports

May 2, 2023

There is a brand-new section that debuted today in PCAOB inspection reports of audit firms, and it is devoted to auditor independence.

“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,” PCAOB Chair Erica Williams said in a written statement. “These enhancements will provide relevant information that investors have asked for and support improvements in overall audit quality.”

The auditor independence section will appear in reports for PCAOB inspections completed in 2022, beginning with eight reports that were released on Tuesday.

The new beefed-up inspection reports will include:

1. 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 Securities and Exchange Commission independence rules.
2. 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.
3. 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.
4. 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 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.”

[CPA Practice Advisor]