Yes, it is not easy. The Public Company Accounting Oversight Board (PCAOB) has come down hard on external audit firms over the quality of audits and increased errors being detected. Yes, the pandemic has had an impact on the ability of clients and auditors to dig into the issues and resolve Generally Accepted Accounting Principles (GAAP) judgments. Yes, fewer accountants are graduating college, and yes, the financial statements being issued have more disclosures and more nuanced technical accounting treatments with more rule interpretations. Frankly, no surprises.
What it leads to will not only be more penalties for auditors, it will lead to longer and more expensive audits. Boards should want to see the veracity of audits and cooperation with the client being stellar. Audit committees will take these topics up with the full board as it relates to internal controls over financial reporting. According to the PCAOB, "...We are calling on audit committees to use this and all the information available through PCAOB inspection reports to ask tough questions on behalf of their investors and hold audit firms accountable for high-quality results."1
All investors want and demand clarity, transparency, and accuracy in financial reporting. It is the bedrock principle for investor confidence in public markets and lenders in public and private markets. No doubt there will be much more on this topic over time. Stay tuned, we are just getting started. More to follow.
"Now is the time for solutions, not excuses," she said, adding "firms must correct the problems that led to deficiencies in their audits."
Footnote
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