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AUDITING

Five things the PCAOB considers in assessing firms’ remediation

 

By Ken Tysiac
November 18, 2013

The PCAOB on Monday posted to its website the criteria its inspectors consider when evaluating an audit firm’s efforts to address inspection report findings. If remediation efforts fail to satisfy the board within 12 months, the report that contains the criticism may be made public.

While assessing firms’ remediation efforts, board inspectors examine the following criteria:

1. Change. The remedial steps should represent a change to the firm’s system of quality control that helps enable compliance with board standards. Relevant change may include new guidance, policies, or procedures, or taking steps to increase the ability of firm personnel.

2. Relevance. The change should specifically address the quality-control criticism described in the report and enable compliance with board standards. If the cause of the quality-control defect is unclear, inspectors may ask whether an appropriate root-cause analysis was used to develop remedial action.

3. Design. The remedial step should be designed—individually or in combination with other actions—to remediate the quality-control criticism.

4. Implementation. Inspectors evaluate the extent to which the remedial step was put into operation by the close of the 12-month remediation period. If the step has not been fully implemented, inspectors may evaluate whether the firm has demonstrated appropriate diligence and reasonable progress addressing the criticism.

5. Evaluation and effectiveness. Inspectors evaluate whether the remedial step has achieved what it was designed to achieve. If that evaluation cannot be made because little time has passed, inspectors may evaluate if the remedial step is expected to achieve its purpose. Subsequent firm monitoring procedures and external inspection results may be used to measure the effectiveness of the remediation.

Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.

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