The Public Company Accounting Oversight Board is giving corporate audit committees an overview of some of the key areas its inspection team will be looking at during upcoming audit firm inspections.
The PCAOB has been undergoing dramatic changes in the past year, with an all-new board and senior staff, plus a recently updated strategic plan that promises more engagement and communication with audit committees and other stakeholders to keep them informed about the PCAOB’s main activities, including inspections, and to keep an ongoing dialogue with them.
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The PCAOB noted that some of the key areas of focus in its inspections this year will include technological developments affecting today’s audits, including the use of software tools, and how the audit function is responding to some of the risks associated with cybersecurity incidents, digital assets and distributed ledgers, such as blockchain technology. Inspectors will also scrutinize “audit firms’ actions addressing past inspection findings in areas of repeat deficiencies, including auditing internal control over financial reporting, revenue recognition, allowance for loan losses, other accounting estimates, and assessing and responding to the risks of material misstatement such as consideration of any changes in external factors affecting the company.”
PCAOB inspectors will be keeping a close watch this year on audit procedures pertaining to some of the new accounting standards, including the internal control effects of the recent revenue recognition, leasing, current expected credit losses and financial instrument accounting standards.
The board will also be watching out for audit firms’ use of audit quality indicators to monitor their work, including any discussions of AQIs with audit committees. Another important area will be implementation of the new auditor’s reporting model requirements, including understanding implementation experiences related to the auditor’s reporting of critical audit matters, or CAMs. In addition, the inspectors will be looking at audit firms’ quality control systems, including firm cultures, policies and procedures, especially around how they promote consistency in audit quality.
Another important area of scrutiny will be auditor independence, “with particular attention to recurring deficiencies in firms’ monitoring procedures to identify independence violations,” noted the PCAOB.
