Although progress has been made with regard to auditor reviews of internal controls, audit firms haven't used the most efficient techniques, according to a report from the Public Company Accounting Oversight Board.The audit watchdog examined a total of 275 audits of internal controls over reporting performed by registered public accounting firms, specifically looking at the second-year implementation of the board's Auditing Standard No. 2 on internal controls.

"Our inspections found that progress has been made in improving the efficiency of internal control audits, but the board believes that auditors can continue to improve their internal control audits," PCAOB Chairman Mark Olson said in a statement. "The report includes discussion of several areas in which auditors may be able to achieve further efficiency."

No specific firms were mentioned.

Roughly a year ago, the board revealed that during 2006 it would conduct inspections to determine whether auditors were "achieving the objectives of the standard with the least expenditure of resources."

During the second year of review, PCAOB inspectors concentrated on four areas - integrating the audits of financial statements and internal control, using a top-down approach, relying on the work of others, and assessing risk. In each of the four areas, the reviews identified ways in which auditors could have been more efficient. The most common observations were that some auditors:

* Did not fully integrate their audits;

* Failed to apply a top-down approach to testing controls;

* Assessed the level of risk only at the account level, and not at the assertion level, meaning that they likely expended more effort than necessary when testing controls for assertions that were lower-risk; and,

* Might have increased their use of the work of others.

In performing tests of controls, some auditors did not test automated, rather than manual, controls where possible, or did not consider benchmarking strategies for automated application controls that they were testing for the second or subsequent year.

In addition to the areas of specific focus, the inspectors also identified other issues that could present additional opportunities for improvement.

The full report is available at

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