The PCAOB has released its list of areas in which US firms that audited 100 or fewer pubic companies can improve.
See, http://www.pcaobus.com/Inspections/Other/2007/10-22_4010_Report.pdf, and http://www.pcaobus.com/News_and_Events/News/2007/10-22.aspx
The PCAOB lists the following areas where auditing or quality-control deficiencies were observed:
- Revenue
- Related-Party Transactions
- Equity Transactions
- Business Combinations and Impairment of Assets
- Going-Concern Considerations
- Loans and Accounts Receivable (including allowance accounts)
- Service Organizations
- Use of Other Auditors
- Use of the Work of Specialists
- Independence
- Prohibited Non-Audit Services
- Indemnification
- Firm Independence Policies and Procedures and Independence Confirmation with Audit Committees
- Concurring Partner Review
The report does not name the firms in which deficiencies were noted. I was tempted to identify the listed areas that might be of the most concern to an audit committee, but then realized that my list would include all of the deficiency areas. Noting a few of the areas in which auditing deficiencies were observed:
Revenue. One of the primary audit areas. Obviously, not good to have auditing deficiencies in this area.
Related party transactions. Same as revenue--pretty important to an audit committee.
Going concern, i.e., the possibility of not remaining a viable financial entity during the next year. Important to investors, creditors, employees, etc.
Independence. Query: if the auditor lacks independence, does the audit opinion provide any value or benefit to the company, audit committee, investors, or creditors?
Use of other auditors, concurring partner review, and use of the work of specialists. Basically, a failure to follow quality review procedures.
* * * *
