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November 30, 2022

The PCAOB Has Had It With Shoddy Audit Work Performed by Affiliates

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In its ongoing effort to tell audit firms that it means business this time for real, the PCAOB is reminding firms that local affiliates will be held to the same standards as the U.S. firms they are affiliated with.

Said PCAOB Chair Erica Williams to the Financial Times:

“[Global audit firms] know that we are inspecting around the world and that we will hold any firms to account, including affiliates, that break our rules, and we recently enhanced our ‘other auditors’ rules to make that even more clear,” she said.

“If you are engaging other auditors to assist with your audits, you need to be able to hold them to the same quality-control standards that are required everywhere else in the world.”

These comments come mere days after the SEC charged Deloitte China for failing to follow basic U.S. audit rules; Deloitte China personnel asked clients to select their own samples for testing and to prepare audit documentation purporting to show that Deloitte China had obtained and assessed the supporting evidence for certain clients’ accounting entries. This created the appearance that Deloitte China had conducted the required testing of clients’ financial statements and internal controls when there was no evidence in the audit file that it had in fact done so. Says FT, Deloitte subcontracted auditing work on the Chinese operations to its affiliate in China, but it was a US partner that signed off on the work in US regulatory filings.

The PCAOB has only recently gained the ability to audit audit work in China, inspectors have been there since September 19 reviewing the work of U.S.-listed, China-based companies.

While the deficiency rate at U.S. audit firms has been improving in the last few years in many cases, deficiencies at non-US affiliates have hovered around 33% for the last five years.

Related: Warning to Auditors: The PCAOB Is Coming For Dat Ass

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