One of the stated goals of the Public Company Accounting Oversight Board (PCAOB) is to preserve external audit quality. To further this priority, the PCAOB regularly invites public company audit committee chairs to have informal discussions with its Division of Registration and Inspections. During these one-on-one conversations, the PCAOB gathers direct observations and perspectives from the audit committee chairs and shares resources to help audit committees enhance audit quality.
The PCAOB has reviewed and published its overall learnings from these discussions over the past several years, and the latest spotlight report was released earlier this week. The findings provide helpful data points for audit committees interested in understanding what is on the minds of other audit committee members. The findings for 2023 were derived from PCAOB staff conversations with 230 audit committee chairs, 69% of whom had not spoken directly with the PCAOB during previous years. Of the 230 chairs invited in 2023, 75% had at least six years of audit committee experience and 50% had over 10 years of experience.
Key takeaways from this year's conversations include:
- Economic Environment. Many audit committee chairs expressed sensitivity about the current macroeconomic and geopolitical conditions and the unique risks they pose when conducting audits. The chairs were largely concerned with how their auditors understood these external risk factors and subsequently accounted for them in their audits.
- Audit Workforce Environment. In comparison to previous years, audit committee chairs expressed satisfaction with the skill, efficiency and retention of their auditors' workforce. However, several chairs noted concerns regarding the ability to continue recruiting auditing professionals in the future. Additionally, while some chairs voiced concerns regarding the decline of in-person work environments and its effect on long-term development, most expressed continued confidence in the quality of audits being performed in remote or hybrid working environments.
- Significant Discussions with Auditors. Overall, audit committee chairs appeared satisfied with the level of contact they maintained with their external auditors, particularly regarding critical audit matters and their impact on the audit process. The chairs described significant discussions regarding goodwill, impairment, interest rates, fraud, internal controls, liquidity, cybersecurity and required communications.
- Monitoring Quality Control Systems and Independence. When describing their oversight duties, most audit committee chairs believed they sufficiently monitored their auditors for independence and quality control through regular communication. These conversations between audit committees and auditors included auditor presentations and discussions regarding PCAOB inspection report deficiencies and, more specifically, how the auditor remedied or planned to remedy deficiencies. The PCAOB did, however, note that not all chairs described the same level of diligence.
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