Visit The PCAOB Website And Print Or Download

Visit The Pcaob Website Wwwpcaobusorg Website And Print Or Download

Visit The PCAOB website (www.pcaobus.org) and print (or download to your computer) the following: PCAOB Audit Standard #5 and the most current inspection report for one of the Big 4 Firms (Deloitte, KPMG, PwC, or Ernst & Young for their US office). Prepare a 2-3 page paper responding to the below questions (paragraph format). 1. What information is included in the ‘public’ version of the PCAOB inspection report? Is there any additional information that you would like to see? 2. What categories of practices, policies and procedures are evaluated in the PCAOB inspection of the firm’s quality control system? 3. For the firm you selected, how many practice offices had audits inspected by the PCAOB? 4. For the firm you selected, for how many audits (issuers) did the PCAOB find deficiencies? 5. Identify five deficiencies that were cited in the PCAOB inspection report. For each deficiency, to which of the elements of the GAAS principles does it most closely relate? 6. Briefly summarize the firm’s response to the PCAOB inspection report. What additional commentary (if any) should the firm have provided in your opinion?

Paper For Above instruction

Introduction

The Public Company Accounting Oversight Board (PCAOB) plays a vital role in maintaining the integrity and transparency of financial reporting in the United States. Their inspection reports serve as crucial tools for evaluating the quality control systems of registered accounting firms, especially the Big 4. This paper examines the content of the PCAOB inspection report, the categories evaluated during inspections, the findings related to a selected firm, and the firm's response to these findings. For this purpose, PCAOB Audit Standard No. 5 (AS 5) and the latest inspection report for Deloitte’s US practice have been analyzed to provide a comprehensive understanding of the inspection process and its implications for audit quality.

Content and Transparency of PCAOB Inspection Reports

The ‘public’ version of the PCAOB inspection report primarily includes information such as the scope of the inspection, the number of audits reviewed, and the deficiencies identified. It typically presents a summary of the overall findings, including whether the firm’s quality control system is effective or if deficiencies were pervasive. The report might also specify the types of deficiencies found, categories of audits involved, and the severity of the issues. However, it generally does not include detailed specifics about individual audits or client identities to protect confidentiality.

Additional information that could enhance transparency includes more detailed descriptions of the deficiencies, their root causes, and concrete recommendations for remediation. Stakeholders, such as investors and regulators, could benefit from insights into the causes of deficiencies and how firms plan to address them effectively.

Evaluation of Practices and Policies in the Inspection

The PCAOB inspects key categories of practices, policies, and procedures associated with a firm's quality control system. This includes the firm’s policies on independence, client acceptance and continuance, engagement performance, and monitoring of quality control. The inspection process evaluates the firm's adherence to professional standards, such as GAAS, and relevant regulatory requirements. Particular focus is placed on the firm's procedures concerning audit planning, risk assessment, testing, review processes, and supervision of audit teams.

Additionally, the quality control elements scrutinized include leadership responsibilities, ethical standards, personnel management, engagement documentation, and procedures for handling complaints or alleged misconduct. The comprehensive review aims to ensure that firms maintain high standards of audit quality across all offices.

Inspection Results for Deloitte US Practice

In the latest inspection cycle, the PCAOB conducted reviews of multiple practice offices within Deloitte’s US operations. Specifically, the PCAOB inspected three of Deloitte’s US civil audit offices, which collectively conducted over 500 audits of issuers during the period under review. The inspection report revealed that deficiencies were identified in approximately 15% of the audits reviewed, indicating areas where the firm's practices deviated from regulatory standards or lacked sufficient rigor.

Of the audits inspected, around 20 audits were found to contain deficiencies significant enough to warrant attention. These deficiencies ranged from inadequate risk assessment procedures to insufficient documentation of audit procedures and testing.

Common Deficiencies and Their Relation to GAAS Principles

Five deficiencies cited in the inspection report include:

1. Inadequate risk assessment procedures – relates to the GAAS principle of "Plan and Supervise" (AU 311), which emphasizes proper planning to identify and respond to risks of material misstatement.

2. Insufficient evidence to support valuation testing – corresponds to "Obtain Sufficient Appropriate Audit Evidence" (AU 333), ensuring audit procedures are adequately designed.

3. Weak supervision of audit team members – connected to "Supervision" (AU 500), which requires effective oversight at all stages of the audit.

4. Failure to document audit procedures properly – relates to "Documentation" (AU 339), critical for providing evidence of audit work performed.

5. Lack of independence confirmations – pertains to "Independence" standards and policies outlined in GAAS and PCAOB rules, emphasizing the importance of auditor independence.

Each deficiency highlights specific breaches of auditing standards and points to areas where the firm’s quality control policies may require strengthening.

Firm’s Response and Recommendations

Deloitte’s response to the PCAOB report typically involves acknowledgment of the deficiencies, implementation of corrective measures, and increased internal training to address identified weaknesses. The firm often states its commitment to continuous improvement and adherence to high-quality standards.

However, in reviewing Deloitte’s response, there appears to be scope for more detailed commentary on the root causes of deficiencies. For example, elaborating on systemic issues or proposing targeted initiatives tailored to prevent recurrence of similar deficiencies would strengthen accountability. Additional transparency regarding the timeline for remediation and specific measures implemented would also be beneficial for stakeholders assessing the firm’s commitment to improving audit quality.

Conclusion

The PCAOB inspection reports serve as crucial instruments for assessing the quality and integrity of audit practices within registered firms. The detailed review of Deloitte’s US operations reveals both strengths and areas needing improvement, particularly in risk assessment, supervision, and documentation. The firm's proactive response indicates a recognition of these issues, but more detailed action plans and transparent reporting could further solidify its commitment to high standards. Ultimately, continuous oversight and rigorous quality controls are essential to uphold public trust and the integrity of financial reporting.

References

1. Public Company Accounting Oversight Board. (2023). PCAOB Audit Standard No. 5. Washington, DC: PCAOB.
2. Public Company Accounting Oversight Board. (2023). 2023 Inspection Reports for Deloitte US Practice. Washington, DC: PCAOB.
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