The Public Company Accounting Oversight Board is finding many of the same problems at auditing firms during its most recent inspections that it has admonished firms for in the past, according to a new report.
The PCAOB published a staff inspection brief Friday offering a preview of the results of its 2016 inspections of firms that audit public companies and other issuers. The three main areas where recurring deficiencies were most frequently found were assessing and responding to risks of material misstatement, auditing internal control over financial reporting, and auditing accounting estimates, including fair value measurements
“The number and significance of the recurring audit deficiencies that were identified suggests that some firms may need to consider whether additional or different steps need to be taken to improve and sustain audit quality,” said PCAOB director of registration and inspections Helen Munter in a statement.
PCAOB inspectors examined parts of more than 780 public company audits last year and reviewed the system of quality control at more than 190 firms. In the area of material misstatement risks, PCAOB inspectors found many instances where auditors didn’t test for specific fraud risks.
Deficiencies in audits of internal control remained the most frequent deficiencies identified by PCAOB inspectors in 2016, as in previous years. The most frequent deficiencies were insufficient testing of the design and operating effectiveness of selected controls, especially controls that included a review element.
During last year’s inspections, PCAOB inspectors also kept finding cases where auditors either didn’t fully understand how a company came up with its accounting estimates or they didn’t do enough to double-check management's assumptions. Some of the audit deficiencies had to do with evaluating impairment analyses for goodwill and the valuations of assets and liabilities acquired in business combinations.
The document also discusses some other areas where the PCAOB is seeing deficiencies, including ones affected by economic risks, auditing of certain financial reporting areas, audit work regarding multinational audits, and various aspects of a firm's quality control system.
Last year, PCAOB inspectors also looked at how firms are developing and using auditing software and how engagement teams are coping with the risks of material misstatement and related controls associated with cybersecurity.
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