PCAOB Modifies Inspection Plan in Light of COVID-19

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The Public Company Accounting Oversight Board (PCAOB) has announced  that it will modify its 2020 inspection plan in light of the ongoing pandemic, extending the window for conducting audit inspections to five quarters to assess how the coronavirus pandemic has affected audit quality. By changing the period from one year to five quarters, a greater portion of the coronavirus period will be covered, allowing the PCAOB to better assess how auditors have adjusted to myriad changes not only in the conduct of audits, but also in the application and function of public companies’ internal controls. In addition to inspecting year-end audits, the PCAOB will also review some audits of quarterly financial statements. The PCAOB will conduct around 200 inspections of audit firms, which is comparable to prior years.

Central to the 2020 inspections is an assessment of how auditors are planning for and responding to coronavirus-related risks resulting from judgments that auditors have to make while having limited access to a company’s financial information. The PCAOB anticipates that it will report on its findings in the first half of 2021. Some practitioners feel that that timeline is too long, arguing that a release of findings later than the end of 2020 misses an opportunity to provide audit firms with guidance for the 2020 year-end audits. Nevertheless, the PCAOB’s inspection report could reveal what auditors are doing to adequately test companies’ internal controls for remote work in addition to the more typical controls in place around the office environment. They could also assist audit firms in improving their own processes for staff that are working largely remotely. Audit teams should consider how the extended period could affect the standard assessment of a company’s financial statements, especially for filers whose fiscal year differs from a calendar year given that the extended period will not always include the first fiscal quarter.

While this inspection round will look different from prior years, unprecedented times call for companies, auditors, and regulators alike to make appropriate changes to how they conduct business.

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