In recent news, the PCAOB has reported that 40% of the audits conducted in 2022 have deficiencies. When the PCAOB identifies this many issues en mass, people don’t always realize who is most affected and how. It may seem like audit firms are the ones who suffer the consequences when the PCAOB finds deficiencies. In reality, the public companies bear the brunt of it during their yearly audits. Audit firms respond by hiring more personnel, raising audit fees, and cracking down on audits to comply with a heavy-handed PCAOB. Their clients are the ones left paying the price.
The impacts of the PCAOB's report are far-reaching. As a result, clients are required to invest more time and resources into preparing for the audit each year. Impacts include:
Higher Audit Fees: To address deficiencies, audit firms often engage more senior partner time to review audit work. With the increased workload of reviewing and improving audit procedures, audit firms will likely raise their audit fees to cover additional costs. This means that even companies that had no prior audit issues end up paying more for their audits.
Increased Scrutiny: To ensure that audit processes are comprehensive, audit firms may subject their client companies to increased scrutiny. As a result, clients are required to invest more time and resources into preparing for the audit each year.
Increased Workload: Companies will have to revisit their internal controls to comply with auditor’s requirements, even if their controls were previously up to standard.
Increase Effort in Preparation: To mitigate the impact of increased audit fees, companies must be proactive in preparing for the audit. Secondary reviews of financials and internal processes can help ensure that everything is in order when the auditors arrive, reducing the need for additional work and expenses.
Leverage Internal Audit Teams: Companies can involve their internal audit teams in more testing and verify that adequate controls are in place. This proactive approach allows external auditors to spend less time testing controls, potentially keeping annual audit fees from rising even higher.
Streamline Controls Framework: Companies should review their controls framework to ensure it’s efficient and effective. A well-designed and streamlined framework can lead to more straightforward and less time-consuming audits.
At Trenegy, we help companies ensure their processes and controls framework are efficient now and for the future. To learn more, reach out to us at info@trenegy.com.
