CAQ Suggests Five Audit Committee Questions About Inspections

In a blog post on the website of the National Association of Corporate Directors, the Center for Audit Quality’s Senior Director of Professional Practice, Vanessa Teitelbaum, suggests five questions that audit committees may want to ask their auditor regarding the firm’s PCAOB inspection report.

1.     How did your firm respond to areas identified as deficiencies in the inspection?  This question provides “visibility into whether the auditor is taking corrective actions that will improve future engagements.”

2.     Were any of the inspection findings relevant to our industry or business type?  Ms. Teitelbaum explains that “This question helps the audit committee zero in on whether risks flagged by the PCAOB may be pertinent to its own financial reporting and oversight.”

3.     How do inspection findings affect the engagement team working with our company?  Deficiencies identified in other engagements may or may not be relevant to the performance of the team assigned to the company’s audit. Audit committees may want to explore whether inspection findings in other audits will have ramifications for the company’s future audits, such as by triggering additional training, oversight, or personnel changes.

4.     How do inspection results compare across different audit firms?  Ms. Teitelbaum states that “PCAOB inspection reports are not report cards for audit firms” but that comparing inspection results can help the audit committee “gauge whether its auditor is performing at, above, or below audit firm peers.” Such comparisons may help the audit committees evaluate relative audit quality and “inform both immediate and long-term oversight considerations when reappointing auditors.”

5.     How do PCAOB inspection trends reflect emerging risks?  PCAOB inspections reflect emerging areas of audit risk, such as cybersecurity disclosures, sustainability reporting, or reliance on advanced technologies.  Asking about these trends can help the committee understand how their auditor is adapting to emerging risks.

Audit committee may also want to consider the inspection-related questions that the PCAOB staff suggested in Spotlight: Staff Update and Preview of 2022 Inspection Observations. See 2022 PCAOB Inspections Preview Says 40 Percent of Audits Reviewed Had Deficiencies, July 2023 Update.