PCAOB member Jay Hanson wants to talk to auditors who produce audits with no deficiencies. He’s pushing to develop a “best practices” list that will help and inform the entire profession.
“I know that this view isn’t shared universally among the board members of the PCAOB as to whether we should do this,” Hanson said Thursday during an interview after his presentation at the 12th annual Baruch College financial reporting conference. “I view it as a challenge. Let’s as a board understand these attributes of the most successful audits, so it informs us and our thinking and our policymaking.”
Developing such a list is a personal goal for Hanson. He said he often is intrigued to see two audit teams from the same firm who are performing similar audits of similar clients end up with different results.
Despite the same tone at the top and the same training, he said, it’s not unusual to find that one team produces audits without deficiencies, while the other produces audits that have deficiencies. Hanson wants to know what the more successful auditors in those situations are doing right.
“It’s going to take some deeper probing than just looking at a set of workpapers or files,” he said. “It’s more probing the people, as to what made this engagement successful to the extent that we didn’t have any findings.”
Hanson’s idea is just in the concept stage, but the development of best practices could go hand-in-hand with a PCAOB effort seeking to identify measurable indicators of audit quality. The Center for Audit Quality, which is affiliated with the AICPA, and the International Audit and Assurance Standards Board have similar projects underway to measure audit quality.
The PCAOB’s Standing Advisory Group is scheduled later this month to hold a session where members talk about audit quality indicators, Hanson said. The members will discuss whether they think certain aspects of an audit are good indicators of quality.
Coming up with a best practices list could aid audit committees in their supervision of an audit, Hanson said. Such a list could help give audit committees the ability to gauge how their auditors stack up with respect to best practices, he said.
That could allow the audit committee to drive audit quality, Hanson said.
Despite his enthusiasm for creating a best practices list, Hanson said there are challenges:
- He said best practices should not be styled as a safe harbor for auditors who might follow the best practices but produce deficient audits anyway.
- On the opposite end of the spectrum, there is a concern that creating best or desirable practices would in essence be creating de facto standards without going through the PCAOB’s rulemaking and public exposure procedures.
But Hanson believes his goal is worthy of pursuing.
“There are a number of reasons that weigh against going forward with something like this,” Hanson said. “I think we need to find a way to go forward anyway.”
Ken Tysiac (
) is a JofA senior editor.