PCAOB Outlines Priorities for 2016 Audit Firm Inspections
The Public Company Accounting Oversight Board released two documents Thursday describing what its staff is looking for this year when inspecting auditors of public companies and broker-dealers.
The staff inspections brief for auditors of public companies and other issuers includes a new focus on how auditing firms are implementing a recently updated auditing standard on related-party transactions, Auditing Standard 2410 (currently AS 18), which became effective for audits of financial statements for fiscal years beginning on or after Dec. 15, 2014.
The PCAOB is also taking into consideration various economic factors this year, particularly the impact on multinational public companies of the recent significant appreciation in the U.S. dollar index. Other factors under consideration include increased mergers and acquisitions activity, the continued search for higher-yielding investment returns in a low interest rate environment, and ongoing fluctuations in the prices of oil and natural gas.
The PCAOB will also continue to focus on the usual areas where it finds problems, such as auditing internal control over financial reporting, assessing and responding to risks of material misstatement, and auditing accounting estimates, including fair value measurements.
“The information in this brief may help audit firms, investors and others better understand the risk-based factors that the PCAOB considers when inspecting audits,” said PCAOB Director of Registration and Inspections Helen Munter in a statement.
The board plans to inspect around 210 registered firms that audit public companies this year, of which 10 are subject to annual inspection. Among those, approximately 60 are non-U.S. firms in 25 different countries.
For the inspections of broker-dealer audits, the staff inspections brief suggests inspectors should focus on matters involving auditor independence, and financial statement areas with recurring deficiencies, including revenue, the assessment and response to risks of material misstatement due to fraud, financial statement presentation and disclosures, and fair value measurements.
Other inspection priorities will involve audit procedures for related-party transactions and for supporting schedules for financial statements. The inspections staff will also be looking at the procedures for the attestation engagements, particularly the examination of compliance reports and review of exemption reports. In addition, they will be scrutinizing engagement quality review.
The PCAOB is in the mist of setting up a permanent inspection program for broker-dealer auditors. The staff is working on drawing up a rule proposal for a permanent inspection program that the board will consider later this year.
During the 2016 inspection cycle, the PCAOB expects to inspect 75 firms that audit broker-dealers, covering portions of 115 audits and the related attestation engagements. That total includes five firms that audit more than 100 broker-dealers, 13 firms that audit 21 to 100 broker-dealers, and 57 firms that audit one to 20 broker-dealers.