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Trading & Risk Advisory

How PCAOB Changes Will Influence Your Organization's Audits in the Next Five Years

For public and private companies alike, an external audit is a normal component of operating the business. It is also integral in confirming the operational and financial integrity of the business while maintaining public trust. Consequently, no two audits are the same. That is why it is essential to prepare. Looking “through the eyes of an auditor,” is a common approach.  However, there is a less utilized method to understand the auditor’s approach; understand the auditor’s guidance.

For U.S. based public firms, the Public Company Accounting Oversight Board (PCAOB) is the governing body that sets how public companies should be audited to attain reasonable assurance of the claims and assertions made by the audited company. Essentially, the PCAOB is the auditor’s auditor. The PCAOB’s guidelines, bulletins, and standards influence the external audits for private companies and the internal audit function of public and private companies alike. 

PCAOB makes changes to the Board 

The SEC made sweeping changes to the Board in late 2017, appointing all five new members.  As of this publication, three members from that appointment remain. One member was appointed April 2018, and one member appointed October 2019. These members draw from audit, financial reporting, academia, law and risk management. This diverse experience was specifically sought by the SEC to address the business activities facing companies in this era. 

An immediate effect of the Board changes includes changes to senior staff offices, including Chief Auditor (December 2018), Information Technology (February 2019), and Economic and Risk Analysis (June 2019). The results of Board and staff changes are seen through the refreshed goals of the PCAOB.

PCAOB defines goals and objectives to support five-year plan

Through their inspections, the PCAOB can assess the quality, effectiveness, independence, and the comprehensiveness of an audit and the audit firm. This is the central mission of the Board. While maintaining its’ charge, the PCAOB pivoted and expanded its’ focus. The PCAOB has highlighted four primary goals within its’ five-year strategic plan that reflect this broader scope: Effective Oversight, Innovation, Improved Engagement and Process and Culture Optimization. Drawing from these goals, there are two objectives this post will highlight that demonstrate the revised focus.

  • Technology in auditing: “Innovations in data analytics and technology have great potential to improve the efficiency and effectiveness of financial reporting and the audit process. We will monitor the development and implementation of emerging technologies to analyze their implications for the quality of audit services and respond accordingly.”
  • Transparency: “We value the input of those who, like us, are committed to continuously improving the quality of audit services. We likewise value the opportunity to share what we have learned through our oversight activities. We will expand our outreach efforts and seek to engage our stakeholders in a dynamic exchange of views.…Through external engagement, and in coordination with the SEC, we will seek to better understand investors' expectations and will consider the related risks and opportunities for our oversight activities.”

These goals and objectives can be summarized as concerted effort to increase communication with audit firms and audit committees to drive audit quality, leverage technology tools for successful audits, and prevent audit deficiencies.

How PCAOB changes will influence you organization's audits 

Where the PCAOB focuses its efforts is naturally where audit firms will move. Your organization should expect audit firms to leverage technology, including software for testing automation – especially if a manual approach was previously deployed. Automation in audit proves useful for several areas including testing system controls and automated journal entries. As a client, engage with your auditor on what, how, and where automation is being used and how it creates efficiency and ultimately the bottom line. If your auditor is not leveraging automation, challenge them and understand why manual testing approaches remain.

With the PCAOB’s focus on transparency, your organization can be even more empowered to lean on the expertise of your auditor. This can also ensure that the audit firm can perform its’ duties and is positioned to meet your needs. Some circumstances that you can present to your auditor:

  • A potential transaction that is infrequent in nature or presents a unique accounting complexity
  • Advance notice of technology tools implemented; business function and company specialists for the technology. This has a direct impact on financial statement audits for years ending December 15, 2020 and beyond, as it may affect the auditor’s decision to use company specialists as audit evidence.

Conclusion

It is always a good time to engage your auditors. As the PCAOB has empowered audit firms to increase a preventative, technology-enabled approach, your organization can request the same. Doing so increases the likelihood of a clean and value-added audit.  

At Veritas Total Solutions, we have experts in accounting practices especially as it relates to our Trading and Risk Advisory Services. If you are interested in learning more about our specific capabilities, contact us to learn more or subscribe to our blog to stay connected!

Written by Donna Umechuruba

Donna Umechuruba, Associate, helps companies identify and address accounting needs within their implementation and strategic plans. Donna’s experience in the energy industry spans across commodity trading, financial reporting, audit, and technical accounting.