Recent research conducted by Eldar Maksymov (Arizona State University) and Kimberly D. Westermann (California Polytechnic State University) examines the US Public Company Accounting Oversight Board's (PCAOB) audit inspection process and lays out several ways in which it could be improved. These findings are based upon a survey of 25 former inspectors at the PCAOB with experience spanning from 2004 to 2021.
"In an era where the public and inspected auditors continually criticize the PCAOB's approach to inspections, so much so that the Chairperson was replaced in 2021, it is pivotal to understand this approach, but information is limited," the abstract to the paper reads. "To provide transparency over this process, we interview former PCAOB inspectors about the engagement-level inspection process of global network firms."
The researchers found that the PCAOB does not provide adequate training to audit inspectors, instead relying upon their past experience as auditors. The respondents also expressed concerns that the PCAOB sanitizes inspection reports, removing information that may help investors understand the quality of audits and the conclusion of inspections more clearly.
“What’s available to the public is not really presenting a complete view of firm deficiencies,” Westermann told the Wall Street Journal. “That’s the biggest problem.”
In the coming weeks, Starling will publish a Deeper Dive report entitled "Physician, Heal Thyself," which will discuss the global push to hold regulators accountable for their organizational culture and the outcomes such culture may drive. Regulators, that is, are increasingly being held to a standard regarding culture and conduct that they have emphasized in recent years among the firms they oversee. This Deeper Dive will only be available here on Starling Insights.
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