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Audit quality declined for a second straight year, the PCAOB announced on Tuesday. Around 40% of the audit firms it inspected in 2022 had Part I.A deficiencies, “up from 34% in 2021 and 29% in 2020.
Deficiencies are mentioned in Part I.A of an inspection report when the PCAOB finds that an audit firm did not present sufficient evidence to back up its opinion on a “company’s financial statements and/or internal controls over financial reporting”.
The PCAOB conducted inspections of 157 audit firms in 2022 and released its results in a report.
PCAOB Chair Erica Williams expressed disappointment with the findings in a statement. “Let me be clear: a 40% Part I.A deficiency rate is completely unacceptable,” she said. “The PCAOB will continue demanding firms do better and deliver the high-quality audits investors deserve.”
Williams asked investors to encourage audit committees to choose auditors with “proven track records on quality,” and pointed them to resources on the PCAOB’s website that let viewers see and compare audit firms’ deficiency rates.
She also advised audit committees to “hold audit firms accountable on behalf of investors” by asking them probing questions about their inspections. They can find sample questions on the PCAOB’s report or on its website.