I’m Jennifer Louis, CPA. In this article, I’ll be giving an overview of the PCAOB’s areas of focus in inspections this year. In April, the Public Company Accounting Oversight Board, or PCAOB, publicized their areas of likely focus for the upcoming audit process, spotlighting the PCAOB Staff Outlook for 2021 Inspections. The PCAOB’s main duty is to inspect the quality of engagements of registered public accounting firms to improve audit quality through prevention, detection, deterrence and remediation. Let’s break down the 2021 inspections process!
COVID-19 effects on reporting
For obvious reasons, the continued effects of the COVID-19 pandemic on accounting and financial reporting will garner attention. This is particularly true for the hardest hit industries, such as transportation, hospitality, retail and entertainment. Common issues in reporting often center around the proper treatment of long-lived asset impairment, going concern uncertainty, allowance for credit loss and increased fraud risk.
What impact does this have on audits?
Changes in the working environment necessitated modifications in an entity’s design, implementation, maintenance and the monitoring of internal controls over financial reporting. How auditors reflect the resulting impact on identified risks of material misstatement and resulting sufficient appropriate audit response is critical for an effective audit.
In addition, the PCAOB will evaluate how audit firms managed the challenges and potential scope limitations of remote auditing. This includes time constraints, lack of access to evidence and client personnel, and more. Continued emphasis on preserving independence, maintaining professional skepticism, exercising due professional care and other important elements of a quality audit will likely be addressed.
Despite sharing reminders about areas of potential emphasis in upcoming inspections, the PCAOB has also made a commitment to less predictability in the areas targeted in inspections. Therefore, the percentage of randomly selected audits will increase, rather than simply focusing on the largest issuers from a market capitalization perspective.
I hope this article has helped you and your firm better understand the PCAOB’s focus areas in the context of inspections for 2021.
Keep reading the Becker blog for more important accounting updates that all accountants should be in-the-know of.
The content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.
Jennifer has more than 25 years of experience in designing high-quality training programs in a variety of technical and “soft-skills” topics necessary for professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, where she focuses on designing and delivering practical and engaging accounting and auditing training. Jennifer started her career in audit for Deloitte & Touche. She graduated summa cum laude from Marymount University with a B.B.A. in Accounting.
