Audit Risks During Financial Crisis: PCOAB
The PCAOB (Public Company Accounting Oversight Board) has published a report that has looked at the problems its inspectors faced when they were auditing firms in the years between 2007 and 12009. This was during the wake of the financial crisis the world economy was going through.
The report lists many instances of problems its PCOAB inspectors had to deal with.
The PCOAB inspectors found a number of audit firms who did not comply with the accounting standards that had been laid down by the board in key areas. The key areas include impairment of goodwill, measurements, indefinite-lived intangible assets.
Other long-lived assets are also included in the key areas suggested by the PCOAB, such as allowance for loan losses, revenue recognition, off-balance-sheet structures, income taxes and inventory.
The PCOAB found problems in the audits of financial institutions and other kinds of companies.
Daniel Goelzer, who is the PCAOB acting Chairman, said in a statement that the inspection observations which the board found underscored the need that auditors had to be diligent in their assessment.
Goelzer further added that auditors need to respond to the emerging areas of risk when business and economic conditions change.
The board’s report also included an analysis into instances when external auditors were used in the fair value measurements of financial instruments. According to the report, their auditing firms “failed to obtain a sufficient understanding of the methods used by the parties providing those valuations.”
Auditing firms were also sometimes guilty of failing to improve their quality control systems.
The PCOAB is planning to conduct a follow-up investigation on whether the changes it brought in the firms’ quality control systems have had the desired effect.
The PCOAB is also planning to provide guidance on the current auditing standar