Public Company Accounting Oversight Board

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The PCAOB has established an ambitious outreach effort directed toward small registered firms and their audit clients to address their unique issues and questions. These one- and two-day discussion sessions, called Forums on Auditing in the Small Business Environment, follow an in-depth curriculum on PCAOB activities and developments. They have provided – more... an avenue for small registered firms and small public companies to obtain a better understanding of the workings of the PCAOB, and they have fostered a robust dialogue that has given the PCAOB valuable insights to apply in its programs. In addition, I believe the Forums have better equipped firms with information to address the challenges of the regulatory environment.

To date, the PCAOB has held 21 Forums in 14 metropolitan areas across the country. Nearly 2,000 people involved in the small business community have attended the Forums, including about 1,500 auditors from smaller public accounting firms. Based on positive feedback from participants, the PCAOB intends to continue to hold Forums to further the PCAOB's dialogue with such firms and companies.

C. The PCAOB's Supervisory Inspection Program Helps Small Firms Focus on Audit Quality Necessary to Compete in the Market to Provide Public Company Audit Services.

While the Forums reach small firm auditors in a group environment, PCAOB inspections foster an even deeper, one-on-one dialogue between the PCAOB and small registered firms. Under the Act and the Board's rules, firms that audit the financial statements of 100 or fewer public companies are subject to inspection at least once every three years. The PCAOB has taken a supervisory approach toward implementing its inspection program. In these inspections, the PCAOB has observed first-hand how some small firms distinguish themselves professionally and competitively by performing high-quality audits. In other cases, PCAOB inspections identify areas in which firms should do better. For those firms that strive to improve the quality of their audits and their ability to compete for public company audit clients, the supervisory dialogue throughout the inspection process helps them to do so.

While the PCAOB's inspections are the core of its supervision of registered firms, these inspections take place largely outside the public view. This is because the Act mandates a significant degree of confidentiality relating to inspection information. One particular provision relates to any portion of a PCAOB inspection report that describes criticisms of the firm's system of quality control. Under the Act, a firm has one year to show that it has satisfactorily addressed those criticisms, and if it does so those criticisms remain nonpublic. This remediation mechanism reflects Congress's policy decision to use the possibility of public disclosure as an incentive to firms to address systemic problems.5 It has proven to be a key tool to motivate firms to do better. When the PCAOB identifies problems, firms typically take those criticisms seriously and make substantial changes within a year.

Under the Board's supervisory approach, it is able to use its inspection process to address most of the individual, or isolated, auditing problems identified, without the need to invoke its disciplinary authority to enforce applicable laws and standards. For example, when an individual audit is not up-to-grade, inspectors discuss with the firm precisely what the deficiency is. Sometimes this means a firm will perform additional audit procedures to shore up a weak audit. When the problem relates to an individual auditor, a firm may provide additional training to or supervision of the person involved or take other action the firm determines is appropriate. Thus, the PCAOB inspection process has been able to prompt and facilitate firms' achievement of significant real-time improvements, often even before an inspection is concluded. – less – More from ZoomInfo »

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