Audit firms have taken measures to respond to adverse regulatory inspection findings, but have they done the right things? And have they done enough?

Those are the questions the Public Company Accounting Oversight Board is beginning to ask as it assesses its 2016 inspection outcomes and explains its findings in a new summary report. The board has not yet published any individual reports on any of the major network firms arising from inspections performed more than a year ago in 2016, so the new inspection brief airs at least the overarching concerns publicly for the first time.

The inspection brief reveals that the nature of audit deficiencies called out the major network firms in 2016 inspection reports will be no different than they have been in the past few years. Inspectors continue to identify problems with auditors’ response to the risks of material misstatements, with the auditing of internal control over financial reporting, and with the auditing of accounting estimates, including fair value.

The new report says inspectors also noticed some recurring but not pervasive problems with audit areas affected by certain economic risks, some areas of financial reporting, some audit work on multinational companies, and some areas of firm quality control systems. Inspectors also spent a fair amount of time observing and reviewing how firms are ramping up their use of technology in the audit process, the report says.

With respect to how firms have responded to persistent problems identified through inspections, the board clearly is asking some high level questions. The report acknowledges firms continue to make “incremental progress,” with measures like training and coaching, enhanced audit methodologies, new tools and guidance, and monitoring of remedial actions.

Yet the board remains concerned about the “number and significance” of recurring audit deficiencies, which “suggest that firms need to consider whether additional or different steps need to be taken in order to improve and sustain audit quality.” The report says firms need to continue to perform detailed and comprehensive root cause analysis of recurring deficiencies to appropriately remediate systemic problems.

The PCAOB says the firms are at different stages in terms developing root cause analyses, and it calls on all firms to do a better job in that area. “Some firms have been challenging their own previous assessments of the causes of these recurring audit deficiencies, and are also evaluating factors that may contribute to positive audit quality in an effort to improve the effectiveness of their remedial actions,” the board says.

The report identifies and describes sample inspection findings with the most pervasive audit problems as an instruction tool to audit firms, encouraging engagement partners and senior engagement team members to keep them in mind when planning audit and reviewing engagements. It also offers high-level observations on other audit problem areas like audit areas affected by business combinations, investments, and oil and gas price volatility; going concern compliance, audit focus on related party transactions, technology issues, multinational engagements, communications with audit committees, and firm quality control systems.

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