PCAOB Notes deficiencies in decreased Audits of Internal Controls
According to the Public Company Accounting Oversight Board, there has been some audit improvements regarding financial reporting on internal controls and at the same time some contradicting findings. In a speech done last week during the annual meeting of the American Accounting Association in Chicago, one of the PCAOB members Jeanette Franzel raised some discussions in the board’s inspection. She commented that the audit deficiencies in ICFR continued to be the most frequently inspected findings and which are a big concern.
She confirmed that in the findings of PCAOB, there were some contradictory patterns of audit firms which could result to extra research. The data on ICFR adverse opinions are noisy in various aspects and pose opportunities for additional study and inquiry. Nonetheless, there are audit team variations and firm effectiveness in change implementation to the audit procedures of ICFR that greatly impacts the amount of audit work for issuers. Remember that an audit fee at times is impacted due to the simple fact that there are inadequate controls for some issuers.
In the inspection cycle of 2014, the ICFR frequented areas in audit deficiency were in the areas of selecting suitable test controls, testing the effectiveness of design in order to establish whether controls of the company satisfy the control objectives and can detect errors or fraud effectively in order to avoid material misstatements and also test the effectiveness of operational controls.
The PCAOB inspection staff has also seen some engagement personnel rely on controls of management review in order to compensate other deficiencies identified without a full understanding or suitable testing if the control of management review operated effectively at the necessary precision level.
Due to the identified deficiencies, some issuers may see additional ICFR audit work being carried out by audit firms through an inspection of PCAOB in own audits. This is a result of systematic changes being made as responses are made to deficiencies found in various ICFR audits carried out by the company. More audit costs can also result from lack of adequate audit preparations, inadequate evidence and document support hence controls have to be improved.