The Public Company Accounting Oversight Board is planning to change the way it picks audits for inspection and conducts its evaluation, part of an effort to assess the impact of remote-work constraints on the quality of audits.
The U.S. audit watchdog is increasing “significantly” the percentage of public-company audits it selects randomly for inspection in 2021, PCAOB board member
Megan Zietsman
said Monday at a virtual conference hosted by the American Institute of Certified Public Accountants.
In selecting audits for inspections, the PCAOB usually seeks out those that may pose a difficult or complex issue. Despite the higher proportion of random audits next year, the total number of audit inspections conducted will remain about the same, she said.
Last year, the PCAOB inspected portions of about 710 public-company audits, most with fiscal years ending in 2018, up 1.4% from the previous year, according to annual reports. The percentage of randomly-selected audits wasn’t immediately available.
The PCAOB expects the increased element of surprise to help raise audit quality.
“We think that will cause audit firms to focus consistently on performing quality audits across the practice, rather than on those perceived to have a greater chance of being selected for PCAOB inspection,” said Ms. Zietsman, who was sworn in as the group’s newest board member Nov. 20.
Inspectors also intend to focus more on nontraditional areas of audits, such as those that don’t necessarily appear to present significant challenges to the auditor. For some audit firms, the PCAOB’s areas of focus have become predictable, allowing them to tailor their audit efforts accordingly, Ms. Zietsman said. The PCAOB also will continue to target areas that could pose a higher risk of a misstatement or are the subject of recurring audit deficiencies.
The 2021 inspections, like the evaluations under way this year, will focus heavily on how auditors are completing procedures despite remote-work constraints such as availability of information and access to the client’s managers.
This summer, the PCAOB extended its window for 2020 inspections to better assess the pandemic’s impact. For the first time, the watchdog reviewed some audits of quarterly financial statements, to release findings earlier in the process. External auditors increased their communication with their clients’ audit committees as they assessed financial performance, the PCAOB said in a Dec. 2 report.
“We hope to make strides in getting our information out sooner for the benefit of all stakeholders,” Chairman
William Duhnke
said at the conference.
The PCAOB has said it expects to report the results of its 2020 inspections in the first half of next year.
Write to Mark Maurer at [email protected]
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