According to a recent PCAOB news release, for the second year in a row, the Public Company Accounting Oversight Board (PCAOB) is finding more public company audits with deficiencies in the inspections of 157 audit firms in 2022. The PCAOB staff expects 40% of the 710 audits reviewed will have one or more deficiencies included in “Part I.A” of an individual audit firm’s inspection report, up from 34% in 2021 and 29% in 2020. Many of the deficiencies described in the report relate to insufficient testing of estimates or the data and reports used to support audit conclusions. Other observed deficiencies relate to “auditors’ testing of controls that include a review element,” specifically insufficient testing of whether internal controls over financial reporting were precise enough to prevent or detect material misstatements.
Most financial statement audit deficiencies landed squarely in the following areas:
- Revenue and related accounts
- Business combinations
- Inventory
- Long lived assets
A keen focus from the PCAOB also centered on conversations needed by audit committees with their independent auditors considering these findings, specifically the discussion around whether the audit engagement or audit partner has undergone a PCAOB inspection. This will also have an impact on private company clients readying themselves for a public market transaction. Expect auditors to be more risk averse.
What Do These Findings Mean for Management Teams?
With auditors under increasing pressure from regulators, expect heightened auditor scrutiny and new requirements for documentation and support requested by your auditors. This increased risk for auditors means more rigorous audit preparation will be expected of accounting teams.
How MorganFranklin Can Help
MorganFranklin is a premier advisory firm specializing in areas that are directly impactful to a successful audit including technical accounting, financial reporting, operational and transactional accounting, audit readiness, and Sarbanes Oxley remediation of material weaknesses and significant deficiencies.
We have a proven record of working hand in hand with independent auditors to bridge the gap between auditor and management expectations. We offer support to management teams to facilitate timely and accurate reporting period close, addressing complex technical accounting issues, and preparation of audit-ready documentation and support.
Our staff includes former auditors who are experienced in navigating the audit process. With auditors under increasing pressure from regulators, we can facilitate successful completion of your independent audit by anticipating and providing the documentation needed by your auditors to support their conclusions.
Unconstrained by auditor independence rules, we assist with workstreams including audit readiness, audit schedule preparation, analysis and audit-ready documentation of complex technical accounting issues , financial reporting assistance, internal controls and SOX readiness, testing, co-sourcing, or outsourcing, to name a few, as we do not perform audits.
