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PCAOB to shake up inspections in 2021

 

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In its 2021 inspections of audit firms, the Public Company Accounting Oversight Board will be paying particular attention to the impact of COVID-19, according to members of the board.

“Without a doubt, the effects of the ongoing pandemic are going to be a focus for us in our inspections in 2021,” said board member Megan Zietsman on a virtual panel discussion during the American Institute of CPAs’ Conference on Current SEC and PCAOB Developments on Monday. “So, much like what we've done this year, we plan to tailor our inspection approach in 2021 as result of the pandemic. I expect we'll look closely at audits in industries that have experienced the most significant disruption to their operations as a result of COVID-19.”

As examples, she cited transportation, entertainment, hospitality, manufacturing and retail.

She also said that the board would be looking at how auditors are completing and documenting procedures in the face of pandemic-related constraints.

“We're also going to be taking into consideration changes in controls due to ongoing changes in the workforce environment,” she continued. “We'll look at how auditors have understood those changes, at their evaluation of how those changes affect the company's controls, and then the auditor's risk assessments. And then, in turn, we'll be looking at how they might've responded to changes to the nature, timing and extent of the procedures to address those risks.”

Besides responding to the pandemic, the board intends to inject a greater element of unpredictability into its inspections.

“We plan to select roughly the same number of audits to review as we have in recent years, but we plan to significantly increase the percentage of audits that we select randomly,” Zietsman explained. “So while we'll continue to focus our efforts on the largest issuers from a market cap perspective, we believe that increased unpredictability in how we make our selections can help raise the quality overall. With respect to increased random selections, we think that that will cause audit firms to focus consistently on performing quality audits across the practice, rather than on those perceived to have a greater chance of being selected for PCAOB inspection.”

The board is also planning to shake up the areas that it concentrates on within the audits it looks at.

“Along the same lines, we plan to select more nontraditional focus areas in an inspection, so when we do an inspection, we look at the whole audit,” she continued. “We target procedures in selected focus areas. And over time, I think we acknowledged that selection of those focus areas has kind of become a bit more predictable, such that firms can anticipate which areas we're going to home in on and then potentially place some more emphasis there, rather than on the other areas that are equally important. So, we thought some more unpredictability there would also be a good thing.”

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Source: Accounting Today

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