The chairs of corporate audit committees want to hear more regularly from auditors, but they’re also concerned about “over-auditing” and “over-documentation,” according to the Public Company Accounting Oversight Board.
The PCAOB released a
The report comes at a time of transition for the auditing profession as more firms are forced to conduct audits remotely as a result of the pandemic. At the same time, firms are relying more heavily on software and data analytics to streamline the often grueling task of auditing a client’s books, perhaps potentially exposing their clients’ systems to cybersecurity risks.
“Innovation and partner rotation were areas where some audit committee chairs praised their auditors, but others flagged them as areas needing improvement,” said the report. “Other potential areas of improvement that were identified included: managing global audit operations; helping more junior audit team members learn the company’s business; independence communications; guidance around auditing of certain controls for third-party vendors; ‘over-auditing’ and/or ‘over-documentation;’ and increased visibility into and discussion around fee changes.”
On the positive side, most of the audit committee chairs interviewed for the report praised their auditors’ communications, saying “they were thorough, timely, and at the right level of detail and frequency. Several also highlighted their appreciation for dashboards provided by their auditors that highlighted real-time data on audit progress and other topics.” They also liked the recently revamped format of the PCAOB’s inspection reports and found them to be more concise, better organized, easier to read, and generally more useful.
Dealing with new accounting standards for revenue recognition, lease accounting and current expected credit losses, or CECL, was considered to be particularly challenging and time consuming for many audit committee chairs. In contrast, implementation of the PCAOB’s new critical audit matters, or CAMs, requirements, was generally seen as comparatively smooth, with audit committee chairs saying that dry runs and other early preparation with their auditors led to few surprises.
The audit committee chairs had mixed feelings about technology. While they cited the potential benefits from the use of emerging technologies such as data analytics and workflow automation to improve audit quality and overall financial reporting quality, they also acknowledged a gap between the technological capabilities of the company and the audit firm. “While some audit committee chairs noted that their companies had more sophisticated technology than their auditors, others said the opposite,” said the report. “Either way, audit committee chairs largely agreed that companies and auditors need similar levels of technological capabilities for the benefits of using emerging technologies to be fully realized.”
At the same time, the audit committee chairs interviewed for the report expressed wariness of the risks that come with emerging technologies as their companies adjust to remote work while dealing with the pandemic.
“They commonly flagged cybersecurity risk as the thing that keeps them up at night, especially with the shift to remote work during the COVID-19 pandemic,” said the report. They also cited overreliance on technology as leading to less attention to, or emphasis on, preparer and auditor judgment, experience or professional skepticism.
