September 25, 2021

PCAOB Says Audit Failures Are No Longer Audit Failures

So, today, this happened:


You'll recall earlier this year, we pointed out new-ish language in PCAOB inspection reports that clarifies the definition of an audit deficiency. It reads:

Whether or not associated with a disclosed financial reporting misstatement, an auditor's failure to obtain the reasonable assurance that the auditor is required to obtain is a serious matter. It is a failure to accomplish the essential purpose of the audit, and it means that, based on the audit work performed, the audit opinion should not have been issued.

Considering the one goal of an audit is to issue an opinion, it seems a stretch to say a failure to accomplish that purpose isn't an audit failure. But the "failure" part has always been a touchy subject. Jay Hanson, in particular, has never really been a fan of the term audit failure.

The PCAOB also uses the word "failed" when getting into the particulars about each issuer. For example: "the Firm failed in the following respects to obtain sufficient appropriate audit evidence to support its audit opinion on the financial statements…"

But that's not an audit failure. Just a ding. A deficiency. Got it, bro.

 

 

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