PCAOB details priorities for audit inspections

June 23, 2023

The PCAOB released expanded details regarding its list of priorities for 2023 audit inspections, most notably risk of fraud, risk assessment and internal controls, and auditing and accounting risks.

The Spotlight: Audit Committee Resource is a series of questions "that may be of interest to audit committee members to consider amongst themselves or in discussions with their independent auditors."

The PCAOB resource advises that auditors can ask several questions related to fraud risk, including:

1. Did the auditor identify any new risks of fraud in the current year audit?
2. Did the auditor identify any significant unusual transactions?
3. What procedures did the auditor perform to identify potential related party transactions?
4. Did the auditor's inquiries of management include whether possible illegal acts, such as potential noncompliance with sanctions and other laws or regulations, have occurred?
5. What procedures were performed by the auditor to address whether management perpetrated or concealed fraud by presenting incomplete or inaccurate financial statement disclosures or by omitting unnecessary disclosures?

Regarding risk assessment and internal controls, the PCAOB's questions include:

1. How did the auditor gain a sufficient understanding of the business and management's strategy?
2. What has the auditor done to understand and/or select and test relevant controls?
3. How did the auditor modify their audit approach in response to identified control deficiencies, if any?
4. How has the auditor contemplated relevant economic factors, such as inflation, rising interest rates, supply chain risks, and ability to access capital as part of its risk assessment procedures?
5. How has the auditor considered relevant economic factors that could affect the public company's ability to continue as a going concern?

On auditing and accounting risks, the questions include:

1. How has the auditor considered the economic environment, including recent significant economic, accounting, or other developments, in its determination of whether an identified risk is a significant risk?
2. For areas where a significant risk was identified, has the auditor considered whether the public company's selection and application of accounting principles, including related financial statement disclosure requirements, were consistent with the applicable financial reporting framework?
3. Did the auditor propose any significant modifications to the disclosure on critical accounting policies and practices that management did not make?
4. When a restatement exists in the public company's disclosures, what were the auditor's procedures to assess the sufficiency of management's materiality conclusion?

The PCAOB also released questions about digital assets, merger-and-acquisition activities, use of the work of other auditors, talent and its impact on audit quality, independence, critical audit matters, and cybersecurity.

[Journal of Accountancy]