On August 1, 2012, the PCAOB issued guidance regarding the PCAOB‘s audit firm inspection process. The guidance is intended to assist audit committees in understanding the PCAOB‘s inspections of audit firms and in gathering information from their auditors about those inspections. The release provides an overview of the PCAOB inspection process and explains the types of findings contained in an inspection report. Part I findings are made public by the PCAOB and describe audit deficiencies where inspection staff found that the auditor failed to gather sufficient audit evidence to support an audit opinion. Part II findings describe deficiencies found in the audit firm‘s overall system of quality control that lead the PCAOB to doubt that the system provides reasonable assurance that professional standards are met. Part II findings may not be made public by the PCAOB unless the PCAOB determines that an audit firm failed to remediate the findings within twelve months of the issuance of the PCAOB‘s inspection report; however, the audit firm may voluntarily release the Part II findings contained in its inspection report.

The release identifies the following possible questions that an audit committee may wish to ask an audit firm about a PCAOB inspection:

  • Was the company‘s audit selected for PCAOB inspection?
  • Did the PCAOB identify deficiencies in other audits that involved auditing or accounting issues similar to issues presented in the company‘s audit?
  • What were the audit firm‘s responses to the PCAOB findings?
    • The PCAOB cautions that in considering an audit firm‘s responses to inspection findings certain responses ―should be viewed with skepticism.‖ These responses include those that might minimize the significance of a PCAOB finding, such as that there was ―just a documentation problem‖ or ―a difference in professional judgment.‖
  • What topics were included in Part II findings?
    • The PCAOB notes that audit firms may be reluctant to share the details of Part II findings, in which case an audit committee may want to ask for certain generic information about Part II findings, including (1) what changes the audit firm is making to address the findings, (2) whether the PCAOB has provided any initial indications that the audit firm‘s remediation efforts may not be sufficient and (3) what final determinations the PCAOB has made about the audit firm‘s remediation efforts.  

The PCAOB release is available at: http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_Committees.pdf.