Auditing firms appear to be making headway on fixing some of the problems identified by the Public Company Accounting Oversight Board.
The results will show up in the inspection reports released next year by the PCAOB detailing the results of 2024 inspections at the largest firms.
“The 2024 inspections cover audit work that mostly occurred in 2023 and early 2024,” said PCAOB chair Erica Williams during a speech Tuesday at the AICPA & CIMA Conference on Current SEC and PCAOB Developments. “Because this board arrived in early 2022, the audit work that occurred in late 2023 and early 2024 just begins to address the direction and guidance provided under this board. PCAOB staff has indicated that they expect the results of these inspections to provide the first glimpse of progress made by firms in response to calls for improvement of audit quality under this Board.”
She sees that as a reflection of the PCAOB’s efforts to improve audit quality under her tenure. “Today, three years into this board’s tenure, our inspectors are seeing significant improvements from the largest firms,” said Williams. “Results will be reflected in the 2024 inspection reports. To be clear, it will take some time for firms to fully reverse this trend. However, this news signals that the work of this board is taking root.”
However, she acknowledged that problems continue to linger, including a rise in the number of restatements by public companies. She cited a
“Restatements are one variable to take into consideration,” said Williams. “And here too, with the increase in restatements, we are beginning to see the results of the slippage of audit quality in prior years. But again, our staff is already seeing improvements. Moreover, we expect even greater improvements when some of our standards, including QC 1000, are fully implemented by the firms.”
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“We believe QC 1000 will set the foundation for quality audits for the future,” said Williams. “A firm’s QC system influences virtually all firm activities. When QC systems operate ineffectively, investors are put at risk. But, when QC systems operate effectively, quality audits performed in accordance with applicable professional and legal requirements are likely to follow — leaving investors better protected. It strikes a balance by introducing a risk-based approach that can be applied by firms of varying sizes and complexity, while also imposing requirements to ensure each QC system is designed, implemented and operated with an appropriate level of rigor. Then it sets up a feedback loop, based on monitoring and remediation, designed to drive continuous improvement.”
She urged auditing firms not to lose focus and to continue to make progress on behalf of investors. Williams noted that the PCAOB staff recently conducted a
After her speech, Williams and other members of the PCAOB were interviewed onstage by Center for Audit Quality CEO Julie Bell Lindsay. PCAOB board member George Botic said he believes the PCAOB is well aligned with the SEC on capital formation. Another board member, Christina Ho, said she believes there’s an opportunity to provide a higher level of transparency about the severity of the Part I.A deficiencies. The board members were also asked about their expectations for the SEC under Paul Atkins, who was named as the
Ho is expecting a more moderate approach and said she is looking forward to working with the new SEC chair. She was also asked about a report by a third party advisory group for the PCAOB on the use of emerging technologies for auditing. She said the report has been delivered to the board and believes the recommendations in it should be made public.
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