An Alert on Internal Control Audit Deficiencies Issued by the PCAOB
In the previous week, the Public Company Accounting Oversight Board (PCAOB) issued a staff audit practice alert to raise the awareness of audit deficiencies seen observed by the Board in the previous 3 three years. The deficiencies regarding internal controls over financial reporting are the focus of this alert. The PCAOB publishes the alerts to highlight new, emerging or noteworthy factors that might affect the way audits are being conducted by the auditors.
Chairman of PCAOB, James Doty stated in a written statement that ""Auditors should take note of the matters discussed in this alert in planning and performing their audits, given the importance of the controls companies use to produce their financial statements,".
PCAOB believes that effective internal controls over the financial reporting help in ensuring that reliable financial statements are produced for the users financial statements. The users of financial statements can use these financial statements and make reliable investment decisions.
Following topics were the focus of the new alert:
- Risk assessment of the auditors and the audit of internal controls
- Selection of controls to test
- IT considerations
- Using the work of others (such as law professionals)
- Evaluation of identified control deficiencies
The PCAOB suggested that the audit committees of public companies for which audit of internal control is carried out should take into consideration the factors highlighted in this alert. The PCAOB also suggested that the auditors and audit committees should discuss the problematic areas highlighted in this alert. The audit committees should also ask the auditor about the potential root causes of the deficiencies and inquire how they plan to respond to the matters.
The PCAOB also highlighted that the auditors should find out and decide how they are going to respond to the facts presented in the alert. It should be kept in mind that the statements in the alert are not rules that need to be followed. The auditors should use the alert to improve the audit work and avoid deficiencies in the future.