The Public Company Accounting Oversight Board released a document Thursday describing its main objectives, focus and scope when inspecting audit firms this year.
According to the PCAOB staff inspection brief, the inspections staff is taking a close look at three general areas across firms: auditing internal control over financial reporting; assessing and responding to risks of material misstatement; and auditing accounting estimates, including fair value measurements.
These are among the most common areas where inspectors found significant deficiencies in the past several years. In addition, PCAOB inspectors consider the current economic environment and related developments in their reviews. For example, economic uncertainty stemming from the financial crisis and the sluggish global economy has in the past factored into the audits and the areas selected for inspection.
“Our 2015 inspection cycle for auditors of public companies and issuers is well underway," said PCAOB director of the Division of Registration and Inspections Helen Munter. “We hope that audit firms and other stakeholders find this information about our inspection focus and scope informative.”
Certain economic developments that factor into the 2015 selections include the high pace of mergers and acquisitions activity; the search for higher-yielding investment returns in a low interest rate environment; the recent fluctuation in oil prices and its varying effects on the financial reporting risks of different industries
During the 2015 inspection cycle, the PCAOB will inspect approximately 220 registered audit firms, in line with the number of firms inspected in 2014. Of that total, approximately 60 are non-U.S. firms in about 25 different jurisdictions.
In 2015, 10 registered audit firms meet the criteria for annual inspection. These firms provided audit reports for more than 100 issuers. The remaining firms inspected in 2015 provide audit reports for 100 or fewer issuers and are inspected at least once every three years.
PCAOB inspections staff plan each year’s inspections by selecting issuer audits to inspect based largely on an analysis of risk, including risk emanating from economic trends, company or industry developments, and the audit firm inspection history.
Inspectors typically focus on audit areas that present auditing challenges and significant audit risk, including significant financial reporting risks, as well as areas of recurring audit deficiencies both within and across firms.
The appendix of the staff inspection brief released Thursday also contains additional information on the inspection program, industry sector and market capitalization demographics, and inspection focus data for issuer audits inspected covering inspection cycles from 2011 through 2014.