Financial Reporting and Regulatory Update

Third Quarter 2020

From the PCAOB

Conversations with audit committees

On July 31, 2020, the PCAOB posted “Conversations With Audit Committee Chairs: COVID-19 and the Audit,” which summarizes the results of discussions with audit committee chairs on their thoughts about COVID-19’s effects on financial reporting and the audit. Audit committee chairs said they are focusing on numerous topics that present increased financial reporting and audit risk. The two main areas highlighted in the report are increased risks associated with remote work and increased communications with auditors. The document identifies forms of communication that audit committee chairs found helpful and provides suggestions for communication with the auditors during the pandemic. It also includes example questions to discuss with auditors regarding remote work and the additional risks it might present related to productivity, timing, testing, technology matters, and cybersecurity concerns.

Forums on auditing in the small-business environment and on broker-dealers

On Sept. 9, 2020, the PCAOB announced that the 2020 forums for auditors of small businesses and auditors of broker-dealers will be recorded due to the COVID-19 pandemic and posted on its website. The recordings, which will include perspectives from the PCAOB and the Financial Industry Regulatory Authority, will be available starting Oct. 19, 2020.

Annual broker-dealer inspection report

On Aug. 20, 2020, the PCAOB released its annual report on 2019 inspections of broker-dealer auditors. The report includes observations from inspections during 2019, insights into applicable standards, and examples of effective procedures. The report highlights that, although there was slight improvement, the percentage of deficiencies for audit and attestation engagements remained high and that continued improvement is needed. The PCAOB believes that auditors could achieve significant positive impact on audit quality if they:

  • Focus on improving their systems of quality control
  • Proactively implement improvements based on the inspection results and the example effective procedures

The PCAOB also noted that this report will assist broker-dealer owners and audit committees or equivalents when engaging with audit firms regarding audit quality and financial reporting.

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