The Public Company Accounting Oversight Board issued a staff report sharing the results of the inspections conducted by its “target team” in 2022.
A group of PCAOB inspectors who conduct in-depth reviews across audit firms, the target team focuses on areas of emerging audit risk. For 2022, it had three primary focus areas:
- The first audits conducted after an initial public offerings (including combinations involving special purpose acquisition companies);
- Audit firms’ use of shared service centers; and,
- Auditor’s consideration of material climate-related matters.
The team released a
Observations, deficiencies and more
For each focus area, the target team chose a number of different audits to inspect, and reported a range of observations and insights.
1. Post-IPO/SPAC. While the target team found deficiencies in 20% of the 20 audits it inspected in this area, all of the deficiencies were in the 16 audits that involved SPACs, and they were related to the revenue focus area.
For audits of this kind, the team recommended a number of “good practices,” including the use of valuation specialists; consulting with the audit firm’s professional practice group; using technology-based audit tools; and additional partner review.
2. Shared service centers. Of the 20 post-IPO audits, 16 involved the use of SSCs, in the U.S. and in India. While the team did not specify any good practices, it did note that larger engagement teams would request specific SSC personnel, to maintain continuity from year to year; that some firms did additional review of SSC deliverables; and that at least one firm automatically reviewed the SSC personnel’s securities holdings for conflicts if time was charge to an audit engagement.
3. Climate-related matters. From the 10 audits in inspected in this area, the team made a number of observations, including:
- All five audit firms used their own internal specialists to help with preliminary risk assessment when climate-related matters might be material to the financial statements;
- That all the public companies involved had increased their levels of communications around climate related initiatives; and,
- All the public companies issued separate sustainability reports that included climate-related matters.
