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Recently, the PCAOB published a Staff report that shows a year-over-year increase in the number of audits with deficiencies at audit firms that the PCAOB inspected in 2022, which is in fact the second year in a row that the PCAOB has observed an increase in audits with deficiencies. In announcing the report, the PCAOB notes:

According to the report, PCAOB staff expects approximately 40% of the audits reviewed will have one or more deficiencies that will be included in Part I.A of the individual audit firm’s inspection report, up from 34% in 2021 and 29% in 2020.

Part I.A of the PCAOB’s inspection reports discusses deficiencies, if any, that were of such significance that PCAOB staff believes the audit firm, at the time it issued its audit report(s), had not obtained sufficient appropriate audit evidence to support its opinion on the public company’s financial statements and/or internal control over financial reporting.

The 2022 update and preview report also highlights questions that audit committees should consider in discussions with independent auditors in light of increased PCAOB inspection findings. These questions include the following:

– Has our audit engagement been inspected, and, if so, would you share the results? Were there any audit areas that required significant discussions with the PCAOB that did not result in a comment form?

– Has the engagement partner been inspected on other engagements? If so, what were the results of that inspection?

– What is the audit firm doing to address overall increased inspection findings?

– Are there any audit procedures that are unnecessarily complicated or not “straightforward” because management is not providing clear, supportable information?

PCAOB Chair Erica Williams released a statement on the Staff report, saying: “Let me be clear: a 40% Part I.A deficiency rate is completely unacceptable. The PCAOB will continue demanding firms do better and deliver the high-quality audits investors deserve.”

– Dave Lynn