PCAOB inspections showed some improvement in firms' audit performance during 2020 compared with the previous year, although a board staff report released Monday said inspectors continue to identify deficiencies that recur from year to year.
In 2020, the PCAOB inspected 510 audits from a total of 114 US audit firms, plus 107 audits from 39 non-U.S. audit firms. For the majority of the annually inspected audit firms, PCAOB inspectors identified fewer findings in 2020 compared with 2019.
At the board's triennially inspected audit firms, some improvements were noted, but the PCAOB staff said deficiencies remain high.
The most common areas of audit deficiencies mostly remained consistent with past years, including:
- Internal control over financial reporting (ICFR).
- Revenue and related accounts.
- Accounting estimates.
- Critical audit matters.
Concerns with firms' systems of quality control also were noted by inspectors. These included issues related to independence, engagement quality reviews, and internal monitoring.
The board inspectors also discovered that in some audits, auditors evaluated the severity and impact of a cybersecurity incident but did not consider whether the incident affected their identification or assessment of risks of material misstatement; whether modifications to the nature, timing, or extent of audit procedures were necessary; and whether the incident could indicate one or more deficiencies in ICFR.
In an emerging area, some auditors did not perform procedures to evaluate the sufficiency and appropriateness over the existence and valuation of cryptoassets recorded at year end.
The PCAOB inspectors also noted good practices that inspectors observed at audit firms in 2020:
- Incremental steps in response to the COVID-19 pandemic, including increased training and assistance, emphasis on consultations, and modified client acceptance and continuance procedures.
- Real-time monitoring of in-process audit engagements.
- Increasing supervision of the work performed by specialists.
- Use of practice aids to assist engagement teams in identifying risks for each factor relevant to management's estimation process.
- Monitoring of workload and expertise of engagement quality reviewers and hiring of qualified and experienced third-party engagement quality reviewers, when necessary.
- Provision of focused industry training and tailoring work programs dealing with industry-specific risks and issues.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.