The Public Company Accounting Oversight Board is expanding its inspection reports on auditing firms with a new section on auditor independence, starting with eight reports released Tuesday on the PCAOB’s firm inspection reports page.
The changes aim to increase transparency and provide more public information to investors and other stakeholders.
“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,” said PCAOB chair Erica Y. Williams in a statement. “These enhancements will provide relevant information that investors have asked for and support improvements in overall audit quality.”
The enhanced inspection reports will include a new section focusing on independence violations (Part I.C) discussing examples of noncompliance with PCAOB rules related to maintaining independence, as well as potential noncompliance with Securities and Exchange Commission independence rules.
The reports also include more information on fraud procedures and the identification and assessment of the risks of material misstatements, expanding 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.
The expanded reports will also include more 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.
For annually inspected firms, reports will include charts and graphs to more 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 R. Botic, director of the PCAOB’s Division of Registration and Inspections, in a press release. “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.”
The eight newly released reports with the additional material are of the following auditing firms:
Reports dated March 23, 2023
Reports dated March 27, 2023
In the KPMG Argentina report, the PCAOB said in the PCAOB-identified part of the new auditor independence section, “We did not identify any instances of potential non-compliance with SEC rules or instances of noncompliance with PCAOB rules related to maintaining independence.” However, it added that the firm itself alerted inspectors about some potential issues. Under the subhead “Firm-Identified,” the report notes, “During the inspection, the firm brought to our attention that it had identified, through its independence-monitoring activities, three instances for one issuer in which the firm or its personnel appeared to have impaired the firm’s independence because it may not have complied with Rule 2-01(c) of Regulation S-X related to maintaining independence.”
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