PCAOB looks back over last year with new board

The Public Company Accounting Oversight Board released its 2021 annual report on Thursday, highlighting its main accomplishments as the PCAOB transitioned to a mostly new board in recent months.

Last year, the Securities and Exchange Commission ousted former chair William Duhnke and two of the other board members, and named four new board members (one had already departed on his own): chair Erica Williams and board members Kristina Ho, Kara Stein and Anthony Thompson. Duane DesParte, who was acting chair during the transition from Duhnke to Williams, is the only remaining board member from a year ago. Williams, who was sworn in this January, described the board’s accomplishments in an introduction to the report.

“In 2021, the PCAOB faced changes and transition, including the continuing challenges of the COVID-19 pandemic, high-profile developments in the capital markets, and ongoing technological evolution in auditing,” she wrote. “The leadership of our organization also changed with the appointment of four new board members in November. Amid these shifts, our organization stayed focused on performing at a high level. It did so thanks in large part to things that don’t change. The first of these constants is the PCAOB’s mission. As we take steps to adapt to a changing environment, we strive to fulfill our purpose: to protect investors and further the public interest in the preparation of informative, accurate and independent audit reports.”

Despite the pandemic, the PCAOB inspected 191 auditing firms, including 12 U.S. firms with more than 100 issuer audit clients, 81 U.S. firms with 100 or fewer issuer clients, 50 U.S. firms that audit broker-dealers, and 48 non-U.S. firms in over 26 jurisdictions. The PCAOB is still negotiating with Chinese authorities to gain the ability to inspect its audit firms (see story).

The PCAOB has come under pressure to step up its enforcement efforts, which is one reason why the old board was forced out by the SEC. Last year, the PCAOB issued 21 settled disciplinary orders, sanctioned 15 individuals and 14 audit firms, and issued 14 orders involving U.S. auditors and seven orders involving non-U.S. auditors. That total included five orders involving the six largest global accounting firm networks, and 16 orders involving smaller accounting firms.

Last year, the PCAOB updated several of its rules, especially with rulemaking pertaining to the Holding Foriegn Companies Accounting Act, the 2020 law passed by Congress that threatens to delist companies whose auditors don’t allow PCAOB inspections for three years in a row, mainly aimed at Chinese auditing firms. The PCAOB staff also worked to develop a proposed standard on quality control for the board to consider and continued to monitor other areas to add to the standard-setting agenda. Another standard-setting initiative that made headway in 2021 was a project on the lead auditors’ use of other auditors. The PCAOB issued a proposal to strengthen the existing requirements and impose a more uniform approach to a lead auditor’s supervision of other auditors. Last September, the PCAOB issued a supplemental request for comment asking for further public input on revisions to the proposal, with hopes of adopting final amendments and completing this standard-setting project this year.

“Ensuring our standards remain relevant and fit for use is essential to our investor-protection mission,” Williams wrote. “Our goal is to set high-quality standards informed by our oversight activities, our understanding of the audit and financial reporting environment, and public input.”

Separately, on Tuesday, the PCAOB issued a request for comment on the initial impact of the new requirements for auditing accounting estimates and using the work of specialists. The request is part of the PCAOB’s interim analysis of the recent requirements. The PCAOB plans to evaluate the comments it receives, along with other evidence it gets from the analysis, and weigh whether additional guidance or other steps may be appropriate.

“The PCAOB is committed to performing robust economic analyses of the overall effect of new auditing requirements, including performing post-implementation reviews,” said Williams in a statement. “We welcome input from investors, audit committees, preparers, academics, audit firms, and others who use financial statements.”

Comments can be emailed to comments@pcaobus.org or mailed to the Office of the Secretary, PCAOB, 1666 K Street, NW, Washington, DC 20006-2803. All comments should refer to Interim Analysis No. 2022-001, Estimates and Specialists Audit Requirements, on the subject or reference line and should be submitted no later than June 10, 2022. The comments will be posted to the PCAOB website. The PCAOB is encouraging commenters to provide data, evidence, and/or specific examples to support their comments in response to the request. More information about the PCAOB’s post-implementation review program is also available on the PCAOB website.