Accounting Observer > Public Blog - PCAOB's 2006 Report On 2005 Audits

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Subscriptions to full posts available for $500 annually.

PCAOB's 2006 Report On 2005 Audits

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	4/19/2007 5:53 AM
Yesterday, the PCAOB released its report on the study of 275 examinations of internal control audits performed by auditors engaged to report on 2005 financial statements. Their findings are a bit dated, but about as timely as can be: the 2006 audit season is just now finished. The tuna doesn't just swim into the can, and you can't report on 2006 audits until you've inspected the work. Their findings might not be terribly startling: yes, there's room for improvement in the way auditors audited internal controls. Keep in mind however, that these reports covered the second year that Section 404 reviews were being performed. Auditors were still sliding down that learning curve. In fact, the report specifically states that "progress was made in improving the efficiency of internal control audits. Many of these improvements resulted from the easing of time constraints that auditors and issuers faced in the first year, issuers' and auditors' additional experience..." Which is the way it's supposed to go, and has. Nevertheless, the Board's examiners found room for improvement in some key areas. From the report: Some auditors did not fully integrate their audits; that is, they didn't mesh their internal control study findings with their plans for auditing the financial statements. Some auditors failed to apply a top-down approach to testing controls. (They didn't pick the most critical areas for testing first.) Some auditors assessed the level of risk only at the account level - which led to more detail work than perhaps was needed. Some auditors could have increased their use of the work of others - which naturally, could have sped things along. The examiners also found that some auditors didn't make use of rule guidance that relieved them of some of the required assessments in the original standard (Auditing Standard 2), which is itself now in the midst of an overhaul. The findings aren't terribly surprising: given that the exams were of a second-year step in a long overdue process, you'd expect that auditors are still finding their feet. The report mentioned progress, but the emphasis of those participating in the process of overhauling Auditing Standard 2 is going to be the flaws.

Permalink \| Trackback