PCAOB Report Reveals Insights on State of the Audit

The PCAOB has issued a report that includes perspectives of 244 audit committee chairs at U.S. companies that the agency inspects. Feedback covered the professional landscape, areas of improvement, ESG, technology, cybersecurity and more.

Compliance Week editor Kyle Brasseur shared five key points gleaned from the PCAOB’s report, “2021 Conversations with Audit Committee Chairs.”

  1. Concerns with technology – The PCAOB noted audit committee chairs’ comments were “not uniformly positive or bullish” regarding the impact of technology on audits. Some stressed their concerns for cybersecurity, noting technology systems are often vulnerable to hackers. Other worries include the use of technology weakening the audit “by eliminating critical human interaction” and that “automation can make people lazy, which is why checks and balances are essential as automation becomes more prevalent.” Positives were data analytics, automation and testing. “One recurring idea that we heard from audit committee chairs is that emerging technologies, despite all their promise, may never be a silver bullet,” the report said.
  2. ESG on the radar – The report says that about 70% of audit committee chairs cited ESG matters as a key area of discussion. “ ‘Huge issue,’ ‘hot topic,’ (and) ‘pressure from investors’ were recurring phrases.”
  3. Hot accounting areas – Goodwill accounting and impairments, revenue recognition, and recording credit losses,were the most time-consuming topics in audit committee meetings last year. Lease accounting was not mentioned.
  4. Covid-19 remains ‘big topic’ – The pandemic affected audit committee chairs when it came to company liquidity, going concern assessments, relevant disclosures and management of the audit in the remote environment and the audit risk assessment, the report says.
  5. Areas for improvement ­– “More than any other factor, audit committee chairs indicated that their satisfaction with the auditor’s work was driven in large part by comprehensive, timely communication,” the PCAOB stated. Committee chairs noted that last-minute pileups, communication problems and turnover were among their biggest pet peeves.

When it comes to the inspection reports themselves, some of the auditors interviewed had some concerns about the time gap between inspection and issuance of the report. “The PCAOB recognizes the importance of sharing information and insights from our inspections on a more timely basis and is focused on accelerating the issuance of our inspection reports going forward,” the report said.

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