The Focus of Future PCAOB Auditor Inspections

By Farrell, James J.; Shadab, Houman B. | The CPA Journal, June 2005 | Go to article overview

The Focus of Future PCAOB Auditor Inspections


Farrell, James J., Shadab, Houman B., The CPA Journal


While the Public Company Accounting Oversight Board (PCAOB) inspections of 2003 were limited to a few dozen engagements of the Big Four accounting firms, the PCAOB is in the midst of conducting full-scale inspections of not only the Big Four but also mid-size and smaller accounting firms. With the PCAOB's anticipated growth to 300 full-time employees and seven regional offices across the country, and an increase in its budget from $103 million in 2004 to $137 million in 2005, the inspection process is set to become a permanent feature for auditors.

Going forward, the impact of the PCAOB inspections cannot be underestimated. As the limited 2003 inspections showed, the PCAOB may extensively examine many GAAP principles, ranging from minutiae to material events. Indeed, as public comments by PCAOB officers indicate, "high-risk" clients and fraud detection are likely to be the focus of future inspections. In an August 2004 interview with CFO.com, PCAOB Chairman William McDonough stated that inspections "will be slanted heavily toward high-risk engagements." PCAOB member Daniel L. Goelzer, in a May 2005 interview with BNA, said that he hoped that auditors would learn to apply a more risk-based approach to auditing corporate controls during the give-and-take of the inspection process itself.

Fraud detection by auditors might also be reviewed, as McDonough reiterated that auditors have the duty to detect fraud and will be held accountable for failing to do so. PCAOB Chief Auditor and Director of Professional Standards Douglas Carmichael likewise underscored, in "ACFE Conference Highlight: PCAOB's Director Urges Auditors to Do More to Find Fraud" (Business Wire, July 14, 2004) and in "PCAOB: 2004 Inspections to Focus on Fraud, Documentation" (WebCPA, September 16, 2004), that "the real focus [of audits] should be on detecting fraud."

Independence issues are also likely to be the focus of future inspections. In a July 2004 WebCPA article, sec Chief Accountant Donald T. Nicolaisen encouraged the PCAOB to take the lead on auditor independence issues by "expanding its role and becoming the primary standard-setter and the primary source of advice and guidance" on independence issues. Of particular concern to the PCAOB is the mass-marketing of certain tax shelters where the auditor takes a percentage of the tax savings as its fee: The PCAOB proposed an auditing standard specifically dealing with such issues on December 14, 2004. Additional issues likely to be the focus of inspections are documentation and high-profile deficiencies such as off-balance sheet entities (including special purpose entities) that significantly affect investors. PCAOB Director of Registration and Inspections George Diacont also stated that the new section 404 internal control standards for public companies will be the subject of inspections. This should come as no surprise in view of the provisions of PCAOB Auditing Standard 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, issued in September 2004. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Focus of Future PCAOB Auditor Inspections
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.