A steady increase in the rate of deficiencies observed by the Public Company Accounting Oversight Board (PCAOB) during audit inspections the past three years has the head of the agency calling on firms to “make changes to turn things around and live up to their responsibility to investors.”

PCAOB Chair Erica Williams released a statement Tuesday in which she described the trend as “completely unacceptable.” The PCAOB is projecting approximately 40 percent of the audits its inspectors reviewed in 2022 will have one or more Part I.A. deficiency, meaning a firm did not obtain sufficient appropriate audit evidence to support its opinion on a public company’s financials and/or internal control over financial reporting.

The deficiency rate is up from 34 percent in 2021 and 29 percent in 2020, the agency said in a press release. Of note, the agency is now reviewing the audits and publishing inspection reports from firms in China and Hong Kong, its first batch of which returned significantly high deficiency rates.

“The PCAOB will continue demanding firms do better and deliver the high-quality audits investors deserve,” said Williams. “We have demonstrated that we will not hesitate to bring enforcement cases against auditors where appropriate. And we will continue to carry out hundreds of inspections each year.”

The PCAOB posts its audit inspection results on its website, which it updated this month to allow users to better filter through its backlog of reports. The agency has yet to release its 2022 inspection results for the Big Four accounting firms, though last year saw PwC and Deloitte fare the best while EY and KPMG had deficiency rates over 20 percent.

Regardless of firm size, the PCAOB is calling on audit committees to hold audit firms accountable on behalf of investors, said Williams. The agency provided examples of good practices firms can use in areas including risk assessment and supervision and review to help improve audit quality as part of a staff report it released.

“There is no one-size-fits-all answer as to why deficiencies increased,” Williams said. “The causes likely vary from firm to firm. So, the solutions will vary as well. … Firms must design and implement solutions to restore and continue to improve audit quality.”