What's Wrong with the PCAOB Audit Inspection Process?


In June, the Public Company Accounting Oversight Board announced it would be delaying this year's international audit inspections for three years. U.S. audit inspections, on the other hand, are "settling into a groove," according to Compliance Week writer Tammy Whitehouse. But they may not be as much help or guidance as the PCAOB intends.


First, in the five years since audit inspections began, the Big Four audit firms have taken to disputing certain findings of the PCAOB audit inspectors, calling them differences in professional judgment, so that they won't be included on the inspection reports. And though reports may be informative to the firms being inspected, they don't provide much of a benchmark for other firms to determine the quality of their audits. The PCAOB and audit experts alike have repeatedly noted that the inspection reports should not be considered "audit scorecards," but firms do it nonetheless.


Second, Whitehouse says, many think the audit inspection process is too slow to be of real value. For example, inspection reports filed in the first half of this year come from data in 2007 financial filings. Mayer Hoffman McCann practice leader Richard Howard says, "If you're a user wanting to compare current information on firms, you're not going to be able to use information from the inspection reports."


The PCAOB says that "improvement in audit quality is [the] primary goal of any changes made in the [inspection] process." But how that process can be improved is a different question.