How can we improve the quality of today’s audits? The PCAOB has a few ideas.
The oversight panel has released a report that examines 11 of the most common issues that have surfaced in the course of more than 500 inspections of firms that audit fewer than 101 public companies. Those issues are:
- Revenue
- Related-party transactions
- Equity transactions
- Business combinations and impairment of assets
- Going-concern considerations
- Loans and accounts receivable (including allowance accounts)
- Service organizations
- Use of other auditors
- Use of the work of specialists
- Independence
- Concurring partner review
“While the report is targeted toward smaller firms, many of the issues noted are found as well at the larger ones, which the PCAOB reviews annually,” reports CFO.com. “Of the 439 inspection reports of small firms conducted so far, 124 didn’t list an audit deficiency or a concern about possible defects in the firm’s quality-control system. In contrast, each of the Big Four reports so far have listed at least seven audit deficiencies.
Here’s more from the CFO.com article:
“The areas listed in the new report are in no particular order, but the first one — revenue recognition —certainly has been a common sticking point for firms of all sizes. Indeed, it may be an ‘especially important’ area for the audits of small businesses, ‘where investors may perceive revenue as a key indicator of the company’s prospects, particularly in situations where the company has yet to earn significant income,’ the report says.”
What’s the biggest audit-related issue you’ve encountered?