PCAOB plans more, wider inspections in 2024
December 20, 2023
The Public Company Accounting Oversight Board plans to review more audit engagements, to expand its inspection procedures, and to get its inspection reports out faster in 2024, according to board staff. They also plan to examine audit firm culture to try to understand an increasing trend toward audit deficiencies.
In a staff report released Wednesday, board staff outlined their key priorities for their inspections in 2024. They plan to increase the number of engagements they review, particularly in industry sectors with higher risks, and to issue the resulting inspection reports in a timelier fashion.
They also intend to expand their inspection procedures on every engagement to assess compliance in areas related to independence, fraud, audit findings, audit committee communications, Form AP reports, the auditor's report, engagement quality review, and audit documentation.
Noting that there has been an increasing trend of audit deficiencies, and of recurring deficiencies, board staff are going to create a team that will focus on firms' culture of integrity and audit quality. The team will interview firm staff and evaluate other documentation, to better understand how audit firm cultures may be affecting audit quality.
Finally, continuing a program they began in 2019, the board intends to assess the quality, consistency and efficacy of their inspections to promote the use of best practices across all inspections.
The priorities come amid stricter enforcement and oversight from the PCAOB, which recently announced that it had levied a record amount of fines in 2023.
Areas of risk
The staff report also noted the overall business risks that inspection staff will pay particular attention to, including:
- High interest rates, tightening of credit availability, and/or inflationary challenges.
- Disruptions in the supply chain and rising costs.
- Business models that are significantly impacted by rapidly changing technology.
- Geopolitical conflicts.
Financial statements that include areas with a higher inherent risk of fraud, estimates involving complex models or processes, and/or presentation and disclosures that may be impacted by complexities in the public company's activities.
While the board will continue to select some engagements for inspection on a random basis, it will also select others based on specific factors, such as:
- Companies in merger and acquisition activities;
- Broker-dealers that file compliance reports and others that provide customers with various investment opportunities, such as introducing brokers.
- Nontraditional audit areas.
Companies in industries and sectors with specialized accounting and/or that may be negatively impacted by uncertainties and volatility in the economic and geopolitical environment. For 2024, that will include companies in financial services and information technology.
The report also offers a number of considerations auditors should bear in mind in their risk assessment and audit procedures, and a set of questions audit committees can ask when hiring auditors and overseeing the audit process.
"Our inspection priorities 'Spotlight' provides firms with important insights to help them plan and perform high-quality audits investors deserve," said PCAOB Chair Erica Williams, in a statement. "We encourage firms and audit committees to make use of this important tool to help improve audit quality."
[Accounting Today]
