September 26, 2020

PCAOB Discovers That Some Firms Consider Audit Quality to Be a Nice Idea That Doesn’t Work in Real Life

PCAOB Board Member Jeanette Franzel, CPA, CIA, CMA, CGFM, gave a speech at University of Tennessee Corporate Governance Center today that discusses "Current Trends and Issues in Public Company Auditing." That's nice and all but the first half of the transcript is more or less a history of auditing and the PCAOB. The second half finally gets into some of the here and now which includes a reminder from Ms. Franzel that the 2011 inspection reports will be as awful as the 2010 reports.

JF cites a few problems inside audit firms that contribute to them sucking it up BIG TIME and one of these is the ubiquitous idea of "tone at the top." It seems that the big enchiladas at some firms have encountered quite a vexing problem – "high quality audits" have a tendency to get in the way of making money hand over fist:

We find instances where firm leadership, through its actions and messaging, accepted a duality of quality and operational objectives that were in conflict with each other, without sufficient emphasis on audit quality. This duality resulted in contradictory messages from the top. "High audit quality" was stated as an objective and embraced conceptually. Nonetheless, other cultural factors and business objectives, such as client satisfaction and retention, and firm revenues and profitability, were allowed to take precedence over audit quality at an operational level. In some cases, the firms' tone failed to clearly delineate, through effective and consistent messaging and actions, the priority of audit quality when it conflicted with other objectives.

I mean, what's a "high quality audit" anyway? We can't get too caught up in these ideals.

[via PCAOB]

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