PCAOB changes 2021 inspection focus areas as a result of COVID-19

Focus areas of the PCAOB’s inspectors will change in 2021 with areas that have been affected by the pandemic undergoing increased scrutiny.

PCAOB member Megan Zietsman said Monday at the AICPA Conference on Current SEC and PCAOB Developments that the board’s inspectors will increase their focus on audits of companies in industries whose operations have received the most significant disruption as a result of the pandemic.

Industries of higher focus may include transportation, entertainment, hospitality, manufacturing, and retail. Areas such as remote auditing, time constraints, availability of information, and access to management that may have been affected by the pandemic also will receive increased focus.

The PCAOB will continue to review how audit professionals are completing and documenting procedures in compliance with standards.

“For example, in some cases, obtaining evidence may comprise a copy in digital form, given the challenges of not being able to put your hands on a physical piece of paper,” Zietsman said. “And that may give rise to the need for consideration of procedures to support the validity of such evidence, and we’ll be looking to see how auditors have responded to those kinds of challenges.”

Inspectors can be expected to scrutinize pandemic-related changes in controls due to ongoing changes in the workforce environment and how auditors have worked to understand those changes and consider them in their risk assessments. Inspectors also will look at how auditors might have changed the nature, timing, and extent of their procedures as a result.

The percentage of audits selected randomly for inspection will increase in 2021 as the PCAOB looks to become less predictable in the audits it inspects. The board will continue to focus on audits of the largest issuers from a market capitalization perspective, but it is hoped that the unpredictability in how selections are made will lead to improved audit quality.

PCAOB inspectors also will focus on areas of the audit that might not have been examined as often as in past years.

“Over time, I think we acknowledge selection of those focus areas has become more predictable, such that firms can anticipate which areas we’re going to home in on and would place more audit emphasis there rather than on the other areas that are equally important,” Zietsman said. “We thought some more unpredictability there would also be a good thing.”

Zietsman added the inspectors still will target areas that they believe pose more risk of material misstatement or that are the subject of recurring audit deficiencies.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.