PCAOB Chairman Duhnke Says Audit Inspections to Change in 2019

Nov 2, 2018 | Taxation

PCAOB Chairman William Duhnke said the board plans to change the way it inspects accounting firms beginning with the 2019 inspection cycle.

The upcoming change is a result of the PCAOB’s review of its inspections program and follows a wholesale change of the board’s leadership at the start of 2018. Duhnke previously said he wants to take a fresh look at every aspect of the board’s functions.


PCAOB Chairman Duhnke addresses attendees at ALI CLE’s Accountants’ Liability conference.

“Since the time our approach was first developed, many firms have made meaningful forward progress in audit planning, including risk assessment, in audit execution, in communications with audit committees, and in other significant areas of the audit,” Duhnke said at the Accountants’ Liability 2018 conference hosted by the American Law Institute in Washington on October 18. “More, however, remains to be done if our goal is continuous improvement in audit quality because there is some evidence that indicates that firms are beginning to plateau on their inspection results.”

Duhnke said the PCAOB will focus on accounting firms’ systems for supervising and hiring employees, or what are called quality controls in the board’s guidance during the 2019 inspection cycle. Regulators believe that effective policies for supervising accounting firm partners and employees lessens the risk of flawed audit work. “We have observed increased audit quality where firms have emphasized strong root cause analysis, thoughtful engagement management, careful assignment of personnel, and risk-focused client acceptance and retention processes.”

The board also plans to disseminate inspection results more quickly. Duhnke said this will better inform investors and audit committees and help auditors correct their actions before they repeat mistakes.

Many details remain to be finalized, but Duhnke said the PCAOB plans to alter its inspection reports with more details about problems the inspection team finds and less boilerplate. Duhnke wants reports that describe the nature and severity of the problems and actions that promote audit quality.

Duhnke said the change in the style and content of the inspection reports will make them more useful. “We hope that our modified approach to inspections reporting will begin to shift the public dialogue away from a mere quantification of audit deficiencies to a more balanced and meaningful assessment of audit quality,” he said.

Investors and audit firms, in comment letters submitted in response to the PCAOB’s Draft Strategic Plan: 2018-2022, said they support a more timely and relevant feedback of audit firm inspections.

The board also plans to take a more flexible approach on audit risks and audit quality issues, Duhnke said. The PCAOB typically sends specific teams of inspectors to focus on individual accounting firms. In 2019 the regulatory board wants to deploy additional teams of inspectors focused on performing targeted procedures across firms on specific topics. The board then will issue a report that summarizes the findings from the targeted inspections.

Duhnke also said the PCAOB will increase its interaction with public company audit committees during 2019 inspections.

“Like us, audit committees are on the front lines of promoting audit quality,” he said. “We view an informed and engaged audit committee member as an effective force multiplier.”


This story was published by Thomson Reuters Tax & Accounting as they reported on ALI CLE’s Accountant’s Liability 2018 Conference.

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