Strategic plan
Five-year strategic plan
On Nov. 18, 2022, the PCAOB approved its five-year strategic plan covering 2022 through 2026 with a request for comments. The PCAOB notes that the creation of the plan was guided by three priorities: investor protection, engagement, and adaptability. The plan has four main goals: modernize standards, enhance inspections, strengthen enforcement, and improve organizational effectiveness. For each, the PCAOB identified objectives to achieve that goal.
Leadership remarks
Keynote speech at AICPA-CIMA conference
On Dec. 12, 2022, at the AICPA-CIMA conference, PCAOB Chair Erica Williams provided a keynote speech highlighting the significance of high-quality audits in the protection of capital markets and enhancing investor confidence. Williams remarked that audit firms must sharpen audit focus as investor confidence is not inevitable. Williams also covered the following topics:
- Inspection observations
- Enforcement actions
- Audits involving multiple auditors
- Audit confirmations
The session concluded with the PCAOB board joining Williams for a roundtable discussion covering various topics including the board’s strategic plan, importance of inspections to achieving audit quality, prospective opportunities and challenges, recruiting and retaining talent, and stakeholder engagement.
Research and standard-setting
Advisory group meetings
The PCAOB’s two advisory groups, the Investor Advisory Group and the Standards and Emerging Issues Advisory Group, met on Oct. 12 and Nov. 2, 2022, respectively. Discussion topics included a new PCAOB research project on firm and engagement performance metrics as well as auditing considerations and attestation standards related to ESG. The research project on firm and engagement performance metrics focuses on firm- and engagement-level metrics that may be indicative of audit quality. The objective of the project is to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions considering the increased disclosure and demand for firm and engagement metrics. Discussion topics related to ESG included the auditor’s consideration of climate-related risks in performance of public company audits and potential updates to the PCAOB’s attestation standards to address the requirements within the SEC’s proposal on climate-related disclosures.
Post-implementation report on estimates and specialists requirements
The PCAOB released on Dec. 8, 2022, an interim post-implementation review report addressing the initial impact of estimates and specialists requirements on key stakeholders. In addition to the report, “Interim Analysis Report: Evidence on the Initial Impact of New Requirements for Auditing Accounting Estimates and the Auditor’s Use of the Work of Specialists,” the PCAOB released two staff white papers that provide additional technical information:
The staff findings suggest that the new requirements improved auditing practices in some instances and did not result in significant increases in audit hours or audit fees. Additionally, the staff did not uncover evidence of unintended consequences from auditors’ initial implementation of the new requirements. The PCAOB plans to continue to monitor the implementation of the new requirements and their impact on the quality of audit services as well as on audit committees, preparers, and audit firms.
Post-implementation report on impact of critical audit matters
On Dec. 7, 2022, the PCAOB issued its second interim post-implementation review report, “Interim Analysis Report: Further Evidence on the Initial Impact of Critical Audit Matter Requirements,” addressing the impact of the CAMs requirements on investors and other key stakeholders. According to the report, the average number of CAMs per audit report has declined over time; however, investor awareness and use of CAMs continue to develop. Also, the PCAOB has not identified significant unintended consequences from auditors’ implementation of the CAMs requirements.
The PCAOB plans to continue to monitor the implementation of CAMs requirements and evaluate the timeline for developing a more comprehensive post-implementation review. The PCAOB does not anticipate publishing the next analysis until after 2023.
New quality control standard proposal
The PCAOB on Nov. 18, 2022, issued for public comment a new quality control (QC) standard that was developed from the comment letters received in response to its December 2019 concept release as well as its own quantitative and qualitive economic analysis. The PCAOB says that this new standard would significantly improve its QC systems at registered public accounting firms.
The proposed standard would replace the current QC standards in their entirety and would provide a framework for a firm’s QC system that is based on proactively identifying and managing risks to quality, with ongoing monitoring and remediation designed to drive continuous improvement. Among other provisions, the proposal would require a firm to annually evaluate its QC system and report the results of its evaluation on new Form QC.
Comments were due Feb. 1, 2023.
Inspections
Previews of 2021 inspection observations
On Dec. 8, 2022, the PCAOB released “Staff Update and Preview of 2021 Inspection Observations.” The report finds an increase in the number of audits with deficiencies in 2021 versus the prior year and says the PCAOB expects almost 33% of the audits reviewed will have one or more Part I.A deficiency, an increase from 2020, which was 29%. Additionally, the PCAOB expects approximately 40% of the audits reviewed will have one or more Part I.B deficiency, an increase from 26% in 2020. The PCAOB noted that a significant portion of that Part I.B increase is related to the reporting of CAMs. Commenting on the report, PCAOB Chair Williams stated, “Higher deficiency rates in 2021, coupled with the fact that the PCAOB is also seeing an increase in comment forms for 2022, are a warning signal that the audit profession needs to sharpen its focus on improving audit quality and protecting investors.”
Audit committees might benefit from the use of this report as a reference point when engaging with their auditors. This information might help investors and other stakeholders become better informed about the matters PCAOB staff finds in inspections.