Financial Reporting and Regulatory Update

Third Quarter 2022

From the PCAOB

Strategic plan

Draft five-year strategic plan

On Aug. 16, 2022, the PCAOB released a draft of 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.

Comments were due Sept. 15, 2022.


Observations from 2021 inspections 

The PCAOB released on Aug. 31, 2022, “Spotlight: Observations From the Target Team’s 2021 Inspections.” The report provides perspectives on the auditor’s responsibilities, observations, and good practices as they relate to the 2021 focus areas of fraud, interim reviews of special purpose acquisition companies, going concern, and cash and cash equivalents. 

Broker-dealer inspection report 

On Aug. 19, 2022, the PCAOB released its “Annual Report on the Interim Inspection Program Related to Audits of Broker-Dealers,” which includes observations from inspections during 2021, guidance about and examples of effective procedures, and information about the inspection approach. According to the report, the percentage of firms with audit and attestation engagement deficiencies remained high at 78%, which is consistent with 2020. 

The PCAOB also notes that this report should help broker-dealer owners and audit committees or equivalents as they oversee the work of their auditors and engage on financial reporting. 

With the report, the PCAOB released “Supplementary Information Related to Audits of Brokers and Dealers,” which provides comparative data about selected firms and engagements and the results of PCAOB inspections over multiyear periods. 

2022 inspection plan 

On June 30, 2022, the PCAOB released “Spotlight: Staff Overview for Planned 2022 Inspections,” which includes areas of inspection focus for 2022, plans related to the PCAOB’s use of target teams in the inspection process, and plans for audit committee outreach. This spotlight is a reference point for audit committees, auditors, investors, and other stakeholders. 

Selected areas of planned 2022 inspections focus include: 

  • Fraud and other risks 
  • Initial public offerings and merger and acquisitions activity 
  • Audit firms’ execution challenges 
  • Considerations specific to broker-dealers 
  • Independence 
  • Use of service providers in the confirmation process 
  • Critical audit matters 
  • Audit areas with continued deficiencies 
  • Firms’ quality control systems 
  • Technology 

Audit committees

Audit committee resource 

The PCAOB on Aug. 17, 2022, released a new publication, “Spotlight: Audit Committee Resource,” which provides auditors, audit committee members, and others questions that audit committees may consider as part of their ongoing engagement and discussion with their auditors. It includes questions on fraud and other risks, initial public offerings, mergers and acquisitions, audit execution, compliance with auditor independence requirements, firms’ quality control systems, auditing digital assets, responding to cyberthreats, and the use of data and technology in the audit. 

Other matters of interest

SOX anniversary and creation of the PCAOB 

On July 28, 2022, PCAOB Chair Erica Williams presented prepared remarks celebrating the 20th anniversary of SOX and establishment of the PCAOB. SOX created the PCAOB with the mission of protecting investors by being an independent audit watchdog. The PCAOB’s role is to set standards to uphold the integrity of public audits, inspect for compliance with those standards, and enforce them to help restore trust in the U.S capital markets. 

According to Williams, since its creation, the PCAOB has: 

  • “Registered over 3,800 audit firms, 
  • “Completed more than 4,300 firm inspections in 55 countries – reviewing more than 15,000 audits of public companies and over 1,000 broker-dealer engagements, 
  • “Issued more than 330 settled orders, and 
  • “Sanctioned more than 230 firms and 270 individuals.” 

Williams noted that continuing to strengthen credibility is a top priority for the PCAOB and identified three key areas where the PCAOB plans to further its investor-protection mission: modernizing its standards, enhancing its inspections, and strengthening its enforcement.