PCAOB Publishes Extra Guidance on Remediation Process
Nov. 11, 2024
Audit firms are encouraged to review the supplement and other resources providing transparency around remediation.
The Public Company Accounting Oversight Board (PCAOB) on Oct. 31 published a supplement to its 2013 staff guidance concerning the remediation process.
The supplement provides audit firms with additional guidance regarding remediation, including making the most of the remediation period, the potential influence of non-technical factors on persistent quality control criticisms, and more.
As mandated by the Sarbanes-Oxley Act and implemented by PCAOB rules, the board can’t disclose its criticisms of an audit firm’s quality control systems for a period of at least 12 months after the PCAOB’s initial publication of its inspection report of that audit firm. During that 12-month period, the audit firm is expected to remediate identified quality control criticisms. If the audit firm fails to address any identified quality control criticisms to the PCAOB’s satisfaction, the board will then disclose those criticisms to the public.
“Making sure audit firms remedy defects in their quality control systems is an important way for the PCAOB to drive improvement in audit quality and protect investors,” PCAOB Chair Erica Williams said in a statement. “The PCAOB encourages audit firms to apply this supplement to the staff guidance when addressing quality control criticisms.”
First published in 2013, the original staff guidance provides information for accounting firms receiving a final audit inspection report from the PCAOB that includes any criticism of the firm’s system of quality control. Specifically, it describes considerations that the PCAOB’s inspections staff has identified as relevant to its recommendations to the board concerning the sufficiency of firms’ remediation efforts.
While not changing or superseding the 2013 staff guidance, the recent supplement draws from the PCAOB staff’s experience since the 2013 guidance was issued.
In February 2023, the PCAOB issued a Spotlight document, “Additional Insights on the Remediation Process,” highlighting factors that the staff considers, particularly related to design, implementation, and effectiveness of a firm’s actions to remediate quality control deficiencies. Presenting additional insights gleaned from the PCAOB’s years of evaluating remediation efforts, the Spotlight noted that PCAOB inspections staff was reviewing the staff guidance to determine if any changes might be needed.
Following up on the 2023 Spotlight, the new supplement to the staff guidance highlights that when addressing quality control criticisms, audit firms may benefit by considering the following:
Starting the remediation process sooner to take advantage of the full remediation period;
Planning ahead in order to get the benefit of inspections staff feedback;
Implementing actions early enough to be able to monitor their operation and include in the submission evidence that they are effective;
Considering whether certain quality control criticisms persist due to the influence of non-technical factors, such as a firm’s culture; and
Understanding the limits of acceptable supplemental submissions after the submission deadline.
Visit the PCAOB’s Remediation page to find the staff guidance, the 2023 Spotlight providing additional insights into the remediation process, and more materials related to remediation.
[CPA Practice Advisor]
