Good Practices and Other Observations Related to Auditor Independence Highlighted in New PCAOB Staff Report

Today, the PCAOB released a new staff Spotlight publication, “Inspection Observations Related to Auditor Independence(PDF).”

Auditor independence is foundational to building investor confidence and fostering trust in the capital markets. Public companies and broker-dealers hire audit firms as unbiased third parties to provide reasonable assurance to investors that the entity’s financial reporting is free of material misstatement.

Auditor independence is a critical element of an audit firm’s quality control system, yet PCAOB inspections show it is an area of frequent deficiencies year after year. This Spotlight – which highlights common deficiencies which resulted in the issuance of comment forms, good practices, and other reminders – can help audit firms and audit firm personnel comply with PCAOB and U.S. Securities and Exchange Commission independence standards and rules.

Good practices discussed in the Spotlight include the following:

• Technology-based tools – Some audit firms increasingly use technology-based tools to promote early detection of potential independence violations.
• Personal independence representations – Certain audit firms are increasing the frequency (e.g., to a quarterly or semi-annual basis) that personnel must provide independence compliance representations.
• Enhanced processes – Certain audit firms are employing enhanced processes (e.g., mandatory meetings with firm personnel skilled in independence matters) to ensure proper considerations are given to reporting all financial holdings. 
• Disciplinary actions – Audit firms have put in place specific policies and procedures providing sanctions for personal independence policy violations.

Visit the PCAOB’s Staff Publications page for more resources on the PCAOB's activities and observations.

*****

About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.