Audit priorities and the impact on accountants

The Public Company Accounting Oversight Board (PCAOB) has unveiled its inspection priorities for 2025, offering a detailed framework for firms to align their processes. These priorities highlight areas of heightened risk and sectors particularly affected by economic, geopolitical, and technological shifts. Below we discuss the focus areas proposed by PCAOB as well as those included in the 2021-2025 Strategic Plan of IRBA.

PCAOB Priorities

1. Industry-Specific Focus

   • Financial sector, focusing on addressing challenges arising from fluctuating interest rates and the exposure of commercial real estate in loan portfolios.

   • Real estate businesses where remote work trends continuing and refinancing pressures increasing. Accountants and auditors must pay specific attention to real estate valuations and debt-related risks.

   • Information technology businesses must correctly addressed complexities in revenue recognition, AI adoption, and supply chain disruptions demand heightened scrutiny and expertise.

2. Emerging Risks

   • Crypto assets and risks related to verifying existence, IT controls, and fraud in blockchain transactions.

   • Generative AI and the unique risk introduced by its integration into the financial reporting system. IT general controls around this integration will be closely examined.

3. Execution Challenges and Standards Compliance

   Practices will face scrutiny over materiality decisions, multi-location audit scoping, and the use of technology in audit procedures to address misstatement risks. Implementation of and compliance with updated standards will also receive attention.

4. Firm Quality Control and Culture

   The PCAOB will closely examine how practices aligned their processes with the requirements of the new quality control systems and its modernised expectations. Practices will need to demonstrate how their leadership and culture drive audit quality, with the PCAOB conducting interviews and documentation reviews.

IRBA Priorities

In South Africa, the Independent Regulatory Board of Auditors is steering its focus toward high-risk public interest entities (PIEs) and tackling recurring deficiencies in both large and small firms. IRBA set the following priorities:

1. Risk-Based Inspections

   • Focus on high-risk public interest entities (PIEs) and engagements prone to deficiencies.

   • Expanded scrutiny of medium and small practices handling non-PIEs.

2. Theme-Based Inspections

   • Evaluating recurring deficiencies, especially in firms with previous inspection findings.

3. Proactive Monitoring

   • Introducing real-time remediation tracking through dashboards and firm-level reviews.

4. Leadership Accountability

   • Insisting on a strong "tone at the top" to foster a culture of quality and prompt remediation.

5. Stakeholder Engagement

   • Increased collaboration with audit committees and other regulators for transparency.

6. Alignment with New Standards

   • Monitoring adoption of ISQM 1, ISQM 2, and ISA 220 (Revised), effective from December 2022.

What Does It Mean for Accountants?

Accountants should be aware of key risks when compiling financial statements and advising clients especially when there is an audit requirement. The IRBA’s focus on high-risk engagements, recurring deficiencies, and proactive remediation highlights the need for vigilance in addressing complex accounting issues, industry-specific risks, and compliance with new standards like ISQM 1 and ISA 220. By staying up to date and focusing on quality, you can meet the rules and give clients reliable financial advice to help them make good decisions.