The drive to enhance audit quality after the cascade of audit failures in the final decades of the last century and first two years of the new century resulted in a new structure for the oversight of public accounting firms. The Public Company Accounting Oversight Board (PCAOB) was established with the passage of the Sarbanes-Oxley Act of 2002. This Board was given the authority to inspect all public accounting firms who provide audits to publicly-owned companies reporting to the Securities and Exchange Commission. Such public accounting firms were required to register with the PCAOB. Accounting firms who audit more than 100 clients per year are required to undergo a yearly inspection; firms who audit 100 or fewer clients undergo inspections at least once every three years and are referred to as triennial firms.
No firms that are inspected yearly have to date received a deficiency free inspection report. However, some of the triennial firms have had deficiency free reports. It is this sub population of registered companies -- the triennial firms -- that is the topic of this paper. Furthermore, the interest here is limited to inspection of the auditing process of the firm; there is no attention to quality control, which constitutes a separate assessment and conclusion.
A simple, relatively brief survey inquiry questionnaire was designed to obtain the opinions of a key person in the sample of firms chosen at random. Questions asked for reasons for their deficiency-free inspections, opinions related to the value of inspections, the role of the PCAOB, and their interest in increasing the number of SEC reporting clients they serve. The questionnaire was accompanied by a covering letter.
Executives of 41 (35.6 percent) of the 115 to whom requests were mailed responded. Among the findings were: A. Factors perceived critical for achieving no-deficiency audits accepted by the respondents were: 1. Systematic, timely and thorough review process; 2. Level of knowledge/skill of the total audit team and; 3. audit partner’s skill in team leadership. B. A majority of respondents concurred the reasons for deficiencies were 1. inadequate review process, 2. weaknesses in knowledge of relevant GAAP and 3. audit partner leadership skills inadequate. Other conclusions are included in the report.
Newman, Bernard H. and Oliverio, Mary Ellen, "PCAOB Inspections: Perceptions of Triennial Firms with No-Deficiency Inspections" (2009). Faculty Working Papers. Paper 66.