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Audit deficiencies have been on the rise since 2020, according to inspection data from the PCAOB. To shed light on why this might be happening, the oversight board looked into the culture of six major auditing firms: the Big Four, plus BDO and Grant Thornton. The study suggested that factors like the accountant shortage and remote work might be contributing to the decline in audit quality.
Firms strained by talent shortage: PCAOB researchers interviewed 15 audit practice leaders and 141 engagement partners at the firms, starting in September 2023. Respondents at all the firms said that insufficient staff resources either contributed to deficiencies or were otherwise cause for concern. Some respondents observed that turnover was a “risk to audit quality” and worked to attract staff by improving compensation and rewards.
Respondents at all six firms stated that the accountant shortage was a problem that “needs to be widely addressed.” Some pointed to low starting salaries and the 150-hour rule as possible contributors to the shortage.
Are OG auditors better? At all firms, respondents said students and younger staff tended to view their roles as jobs rather than careers, and that they were likelier to exit the profession if they saw other, more attractive alternatives.
That’s troubling, because the PCAOB found a correlation between job tenure and audit quality. The firms with the highest percentage of respondents who started their careers there had the lowest deficiency rates; those with the smallest percentage of auditors who began their careers there had the highest deficiency rates.
“Apprenticeship culture” in decline: Remote work might be affecting younger auditors’ skill development, the study suggested, because it’s weakened the “apprenticeship culture” at audit firms. Some respondents said that staff need more “in-person learning and interactions” to share knowledge. Some respondents also felt that the shift to remote work was affecting professional skepticism, which they generally acknowledged was best learned through observation.
Are SSCs robbing newbies of the chance to learn? Usage of shared service centers (SSCs) to perform audit work has intensified in recent years, the PCAOB found. One firm, for instance, used SSCs about 28% more in 2023 than it did in 2022; at another firm, US engagement teams were encouraged to use SSCs for around 20% of their total hours.
The movement toward SSCs may be another factor hampering young auditors’ development, respondents said. Some told PCAOB researchers that “the use of SSC resources is removing foundational skills and experiences from newer firm personnel.” A respondent at one firm said, “[o]ur staff now will never see cash testing, as it is done offshore. We are going to see the impact of that when they are managers.”