When reports on audit inspections performed in 2014 are eventually published, they will show some improvements in the audit of internal control, said Jeanette Franzel, a member of the Public Company Accounting Oversight Board.
“Preliminary results of the 2014 inspections indicate that some improvements have been seen in the area of auditing internal control,” said Franzel, addressing an annual conference of the Institute of Internal Auditors. “That is positive news, especially given the significant changes that were occurring for both management and the auditors.”
On the audit side, auditors were coping with poor inspection findings from the PCAOB on their work in a number of areas, particularly on internal control over financial reporting, followed by orders from the PCAOB to raise their game. As for management, companies were implementing the 2013 COSO Internal Control -- Integrated Framework for the first time in 2014 to comply with a year-end sunset of COSO’s 1992 control framework. Franzel had dubbed it the “perfect storm” for internal controls.
“A year later, I think it is fair to conclude that we are weathering the storm well,” said Franzel. “I will caution you, though. More strides still need to be made by audit firms here, as auditing internal control is still the most frequent area of inspection findings.”
At the end of 2014, Helen Munter, the PCAOB’s director of inspections, said inspectors were in the process of drafting reports on the largest firms and expected to begin releasing them in the second quarter of 2015. “Our 2014 inspections have shown some promising improvements in the audit work performed at certain firms,” she said. “We have seen remedial actions taken by certain firms begin to take hold, and as a result we have found fewer situations where a firm failed to support the opinion it issued.”
That doesn’t apply, however, equally to all major firms, Munter said. “Deficiencies still remain and many reflect recurring deficiencies,” she said. “But the results are encouraging.”
The PCAOB recently published the last of its reports on major firms for the 2013 inspection cycle, showing no significant improvement over 2012 results. James Doty said in December that the board would soon publish some kind of summary of its observations of 2014 inspection results. He said then that the board was seeing some firms showing improvement, both in audit work broadly and in internal control audits specifically, but the results would not show wholesale improvement across the board. “We can see some improvement, but some are not improving,” he said.