Audit Quality Concerns Persist in Major US Firms

The Public Company Accounting Oversight Board (PCAOB) highlighted ongoing concerns regarding audit quality among the largest US audit firms. According to their latest inspections, while the issues reported for the big 4 firms stabilised, the mid-tier firms such as BDO and Grant Thornton have experienced surging rates of audit flaws. BDO recorded deficiencies in 86% of its inspected audits, and Grant Thornton saw flaws in over half of their audits. The PCAOB's report underscores the necessity for these firms to enhance their audit practices and ensure they meet the high standards expected by investors.

The main reasons for the audit problems included the lack of evidence to support the conclusions of audits. This can be traced back to the impact of the COVID-19 pandemic which made remote work necessary and disrupted normal processes, and the effectiveness of firms' internal controls. Firms with strong, well-established quality management systems were better equipped to handle these challenges. The PCAOB's findings indicate that stronger quality management systems and centralised processes before the pandemic helped some firms maintain higher audit quality. The agency has emphasised that more efforts are required to elevate the overall audit quality, including increased office-based work and enhanced training for junior staff.

There are important lessons we can learn from global audit trends. We should be ready to adapt to changes, such as those brought by the pandemic, and be prepared for unexpected challenges. Continuous training and development are essential to keep up with best practices and new technologies. Additionally, keeping our services at a high quality requires monitoring and strong teamwork, particularly in environments where staff work remotely and in the office.

Read more about the 2023 PCAOB inspections in the Staff Update on 2023 Inspection Activities.