PCAOB releases inspection reports for six largest firms in new format

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The Public Company Accounting Oversight Board issued inspection reports Monday for the six largest auditing firms in a new format with more graphs and charts.

The revamped format represents one of the biggest changes since the PCAOB began issuing inspection reports over 15 years ago after passage of the Sarbanes-Oxley Act of 2002, which led to the creation of the PCAOB.

“One of the Board’s top strategic priorities over the past two years has been to communicate more effectively with investors, audit committees, and other key stakeholders,” said PCAOB chairman William Duhnke III in a statement. “Our inspection reports are one of the primary ways we communicate with the public about our oversight activities, and we have heard time and again through our external engagement that the reports can be improved. We are pleased to share our new report with the public, and look forward to hearing feedback.”

The new format streamlines the content to make the reports more readable and includes more charts and graphs to make the information easier to digest and understand. The reports also now include information that hasn’t been previously communicated in inspection reports to improve transparency, in line with one of the PCAOB’s strategic goals. The new information includes a classification system for audits with deficiencies presented in Part I.A. For annually inspected firms, the PCAOB also includes PCAOB inspections data for the three most recent inspection years. While the PCAOB is continuing to highlight the deficiencies identified in the audit work, the reports now include a new section discussing certain other instances of non-compliance with the PCAOB’s standards or rules.

The PCAOB has issued a Guide to Reading the PCAOB’s New Inspection Report explaining the main changes in the new report format. This guide also asks for public feedback on the new report format.

The six reports released Monday include:

KPMG issued a response to the latest inspection report. "We respect and welcome all PCAOB feedback toward our mutual goal of enhanced audit quality," said a statement forwarded by KPMG spokesperson Elizabeth Lynch. "Audit quality is foundational to instilling confidence and public trust in the capital markets. It has been, and always will be, KPMG’s fundamental promise to investors, companies, audit committees, communities and other stakeholders that we serve. Our 2019 Audit Quality Report provides further information concerning the substantial investments and actions devoted to our system of quality control."

Reports for other annually inspected firms will use the new format. All triennially inspected firms’ reports, starting with the 2019 inspection reports, will employ a similar format, but may not contain all the same data as the annually inspected firms’ reports due to the frequency of PCAOB inspections and the size and nature of those firms.

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