October 29, 2021

More on “PCAOB’s Inspection Observations: What Audit Committees Should Know”

Earlier this week, I blogged about the PCAOB’s summary of 2020 inspection findings. A member emailed to ask whether the results of PCAOB audits are made public – because deficiencies in auditor performance could be very relevant to an audit committee’s decision to retain the auditor for the next year.

The PCAOB does indeed post inspection reports – as well as disciplinary actions. However, there’s a big lag between when inspections occur and when reports are issued. Audit committee chairs have told the PCAOB that they’re concerned about that, according to Appendix B of this Center for Audit Quality memo (pg. 14) – which also provides questions that audit committees can ask auditors about their inspections.

In his statement from earlier this week, SEC Acting Chief Accountant Paul Munter noted that the PCAOB inspection program is a key component of ensuring audit quality, and that audit committees should always be focused on audit quality. In my experience, the Big Four and some other large accounting firms always present to the audit committee about inspection findings – but you can’t count on all firms to do that. Especially OUS firms. A lot of mid-sized foreign private issuers that have a primary listing on the NYSE or Nasdaq aren’t a good fit for the Big Four, and one reason their audit quality can suffer is that their audit committees aren’t able to reliably get inspection info from smaller OUS audit firms in advance of engagement decisions.

If an audit committee is unable to access detailed inspection findings, the sample questions from the CAQ memo and the PCAOB’s summary of findings can be a starting point for digging for information.

Liz Dunshee