PCAOB: Not Just Mr. Bad Guy

Members hope the board will become more of a resource for auditing best practices — and not just a cop looking for audit deficiencies.
Kathy HoffelderNovember 28, 2012

The Public Company Accounting Oversight Board (PCAOB) is gearing up to find more uses for the information gathered from its inspections, as well as for its analysis of those inspections for its strategic plan for 2012–2016.

“My personal goal is to have concrete data and analysis to evidence our effectiveness,” said Jay Hanson, a member of the PCAOB board, at the auditing overseer’s board meeting today. A related priority is to enhance the auditing overseer’s “processes and systems to increase the analysis and usefulness of our inspection findings.”

Hanson’s plan for the PCAOB is to move toward a framework of not just finding audit deficiencies, but accumulating data about effective procedures and auditor behavior that can be used in communicating best practices.

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Just how does the PCAOB expect to do that? For starters, it’s asking for a “modest increase” in staff positions. The PCAOB’s budget for 2013 that was presented to the Securities and Exchange Commission is $245.6 million, which allows for an additional 27 new positions. The added staff will allow the organization to support field inspection activities, in particular, and issue more timely summary public reports.

Even with the added inspection personnel, if approved, the PCAOB will still be working to full capacity, cautioned PCAOB chairman James R. Doty during a strategy and budget call today. “Our statistics show that although we have more in the budget, we are doing more, in some respects, with less,” he said. “I think program directors would say this is a very thin red line of staff that does a lot.”

Some of the PCAOB’s planned inspection work for 2013 will focus on broker-dealer audits. It plans to inspect 60 firms that audit broker-dealers.

The PCAOB’s work in this area will be welcomed by investors and buy-side analysts, since the lack of transparency in the auditing of broker-dealers continues to be a hot topic. In August the PCAOB released its first report on its interim inspection program for auditors of broker-dealers. Of the 10 audit firms covered in the report, the PCAOB found deficiencies in all of the audits inspected.

The auditing overseer will also continue its inspection work globally by boosting its Global Network Firm Inspections Program, which now includes the Netherlands, Germany, and Spain. The PCAOB recently made some headway in its quest to have more access to audits performed in China: the Chinese government agreed to let the PCAOB observe inspections of Chinese audit firms that audit U.S. listed companies based in China.

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