The Public Company Accounting Oversight Board (PCAOB) is tasked with overseeing the audits of public companies to ensure accuracy, transparency and reliability in financial reporting. Companies face risks such as audit deficiencies, misstatements in financial reports or noncompliance with standards like those outlined in the Sarbanes-Oxley Act. These issues can arise from inadequate internal controls, poor oversight of external auditors, or failure to adhere to the stringent documentation and testing requirements. Noncompliance can lead to enforcement actions, reputational damage and loss of investor confidence, which can have long-term financial consequences.

To manage these risks, companies must implement robust internal control systems over financial reporting (ICFR) and ensure that these controls are regularly tested and updated. Management should work closely with auditors to ensure that all PCAOB standards are met, including proper documentation of financial transactions and disclosures. Adequate training for accounting staff and executives on PCAOB requirements is essential to minimize errors and ensure compliance. Additionally, companies should conduct periodic risk assessments to identify potential weaknesses in their compliance framework and address them proactively. By fostering close collaboration between internal audit teams, external auditors and management, organizations can create a culture of accountability and precision in financial reporting.

Companies should leverage technology to enhance their compliance efforts. Automated tools can help streamline the monitoring and documentation of financial activities, reducing the risk of human error and ensuring consistency with PCAOB standards. Regular communication with stakeholders, including the board of directors and audit committees, is also critical to ensure alignment on compliance priorities. In the event of PCAOB inspections or inquiries, companies must be prepared to provide thorough and transparent responses. Ultimately, by prioritizing compliance and maintaining a proactive stance, companies can mitigate PCAOB-related risks, safeguard their reputation, and build trust with investors and regulators.

1. Integrated Audit Committee Plan Report

This sample report can be used by auditors to evaluate an organization's control environment and monitor the components of internal controls over financial reporting using an integrated approach. An integrated audit approach includes: understanding the business, including objectives and risks; identifying significant accounts and disclosures from consolidated financial statements; identifying significant locations and any locations with specific risk; defining an approach to locations, considering company-level controls; and identifying relevant assertions, processes, transactions and systems for each significant account and disclosure.

2. Audit Quality and QC1000

These aren’t easy times to be an auditor because of the rapid pace of change, the greying of the workforce, dramatic declines in new CPAs, new regulations, complexity in accounting rules and practices, ever-widening scope of work, aggressive regulators, and technology. It’s no wonder that rates of deficiencies of the PCAOB inspections are steadily rising. These deficiencies, also known as audits with unsupported opinions, indicate that the auditors did not have sufficient evidence to support their opinions on the financial statements.  

3. PCAOB Adopts Amendments to Independence Rules, Announces 2020-2024 Strategic Plan

The Public Company Accounting Oversight Board (PCAOB) has approved its 2020-2024 Strategic Plan, as well as its fiscal 2021 budget of $287.3 million. Several key factors inform the PCAOB’s strategic outlook, including disruptive technological changes and stakeholder engagement and communications. These are the same factors identified in last year’s strategic plan, as the PCAOB believes that these are the correct factors to direct their efforts. Here, Audit Analytics analyzes the PCAOB’s targeted amendments to its interim independence standards applicable to lending arrangements between auditors and audit clients and details the 2020-2024 plan.

4. PCAOB Inspection Reports for Annually Inspected Firms

The Public Company Accounting Oversight Board (PCAOB) is required to inspect audit firms that audit public companies and broker-dealers at least once every three years. Firms that provide opinions for more than 100 issuers must be inspected every year. On February 2, 2022, the PCAOB released the 2020 inspection reports of RSM, Crowe, Marcum, Cohen & Co and Moss Adams. These reports completed the release of 2020 inspection reports for annually inspected firms. In this article, Audit Analytics looks at these reports and explores the most common accounting and audit deficiencies.

5. PCAOB Continues Focus on Critical Audit Matters

Audit Analytics’ critical audit matters (CAMs) report for 2023 filings is out now. Results show that while 68% of the registrants’ opinions contain CAMs, the average number of CAMs in those opinions continues to decline. This has the attention of the Center for Audit Quality (CAQ) and PCAOB as they continue to validate the existence of CAMs. A recent CAQ survey of 100 U.S. institutional investors revealed that 92% use CAMs in their investment decision-making process, with valuation of assets, goodwill and intangibles topping the list of example CAMs. In this article, Audit Analytics further examines the decline of CAMs over a four-year period. 

6. Sarbanes-Oxley Section 404 Project Conclusion Memo

This memo documents an organization’s approach to Sarbanes-Oxley Section 404 compliance and concluding results from the annual assessment. In this example, the organization followed the Public Company Accounting Oversight Board’s (PCAOB) recommendation and implemented the requirements of Section 404 using the Committee of Sponsoring Organization of the Treadway Commission (COSO) Framework, including the five internal control components. The organization outlines the compliance process by focusing on the following: materiality, risk assessment, process documentation, testing, IT assessment, walkthroughs, benchmarking, and evaluation of deficiencies.

7. Internal Controls Over Financial Reporting: Understanding Section 404 of Sarbanes-Oxley

Sections 302 and 906 of the Sarbanes-Oxley Act (SOX) lay a foundation for restoring investor confidence in the integrity of public reporting. Building on that foundation, Section 404 requires management to file an internal control report with the annual report on Form 10-K. The proposed Securities and Exchange Commission’s (SEC) rules make the Section 404 requirements effective for fiscal years ended after September 15, 2003. This time frame will give the Public Company Accounting Oversight Board (PCAOB) an opportunity to establish the relevant attestation standards. In this issue of The Bulletin, we address in detail Section 404 of SOX.

8. Section 404 Compliance: Lessons Learned for the Next 12 Months

In 2006, the Securities and Exchange Commission (SEC) held a roundtable discussion on the second year experiences with the internal control reporting and attestation provisions of the Sarbanes-Oxley Act of 2002 (SOX). The following week, both the SEC and Public Company Accounting Oversight Board (PCAOB) announced their plans to follow-up on the roundtable results and feedback they received. Because of these developments and because many accelerated filers are either preparing for or executing their third year Section 404 assessments, it is a good time to reflect on lessons learned. In this issue, we articulate seven lessons for improving Section 404 assessment and compliance processes.

9. Auditor Changes Roundup: Q3 2024

Astra Audit & Advisory had the most net Securities and Exchange Commission (SEC) audit client gains in the third quarter of 2024 (Q3 2024), adding 10 new clients. Seven of these new engagements were previously audited by Accell Audit & Compliance. Multiple auditor change disclosures mentioned that Accell Audit & Compliance is ceasing to provide PCAOB audit services. Additionally, these disclosures mentioned Accell auditors moving to Astra Audit and Advisory, LLP.  In this article, Audit Analytics further examines Q3 2024 auditor trends, including client gains, market cap changes and audit fees. 

10. Critical Audit Matters: Where’s Climate Change?

Critical audit matters (CAMs) provide the opportunity for auditors to explain their view of the risks and financial implications of climate change and ESG. According to an AASB report, potential implications often arise from assumptions and models for asset impairment, changes in the useful life of assets, changes in the fair valuation of assets, increased costs and/or reduced demand for products and services affecting impairment calculations, potential provisions and contingent liabilities arising from fines and penalties, and changes in expected credit losses for loans and other financial assets. In this article, Audit Analytics examines ESG notes in CAMs.