The Public Company Accounting Oversight Board offered insights Thursday on the remediation process that audit firms need to undergo when addressing problems PCAOB inspectors have found with their quality control.
The PCAOB staff released a new
Under the Sarbanes-Oxley Act of 2002 and the PCAOB's own rules, the board doesn't disclose its criticisms of a firm's quality control systems for 12 months after its initial publication of an inspection report. During that time, a firm is expected to address the quality control deficiencies identified by inspectors. If the firm fails to address quality control deficiencies to the board's satisfaction, the criticisms are disclosed to the public.
This staff report explains some of the factors considered by inspectors, especially when it comes to the design, implementation and effectiveness of a firm's actions to remediate quality control deficiencies.
Some of the main considerations include higher expectations for addressing repeated or persistent quality control deficiencies, the importance of root cause analysis, how the PCAOB staff considers subsequent inspection results, PCAOB staff expectations on the timing of remediation design and implementation, and more.
Among the questions asked by the inspectors are: "Is the remedial step responsive to, and does it specifically address, the quality control criticism described in the inspection report; and does it help satisfy future compliance with the board's quality control standards? If the root cause of the underlying quality control criticism is unclear, did the firm perform an appropriate root cause analysis in developing the remedial action?"
PCAOB inspectors also want to know to what extent the remedial step was put in operation by the close of the 12-month remediation period, and has the remedial step achieved or is it expected to achieve the proposed effect it was designed to have.
