PCAOB Report: Audits With Deficiencies Rose for Second Year In a Row to 40% in 2022

Chair Williams calls findings “absolutely unacceptable,” says audit firms must make changes to live up to their responsibility to investors

Washington, DC, Jul. 25, 2023

A new staff report from the Public Company Accounting Oversight Board (PCAOB) shows a year-over-year increase in the number of audits with deficiencies at audit firms that the PCAOB inspected in 2022. The report, “Staff Update and Preview of 2022 Inspection Observations,” presents aggregate observations from the PCAOB’s inspections of certain public company audits conducted by 157 audit firms in 2022. It confirms what PCAOB Chair Erica Y. Williams warned of in December 2022 when she said the PCAOB was seeing an increase in comment forms during 2022 inspections, following increased deficiency rates for 2021 inspections. Chair Williams challenged firms to sharpen their focus on investor protection.

  • According to the report, PCAOB staff expects approximately 40% of the audits reviewed will have one or more deficiencies that will be included in Part I.A of the individual audit firm’s inspection report, up from 34% in 2021 and 29% in 2020. 

    Part I.A of the PCAOB’s inspection reports discusses deficiencies, if any, that were of such significance that PCAOB staff believes the audit firm, at the time it issued its audit report(s), had not obtained sufficient appropriate audit evidence to support its opinion on the public company’s financial statements and/or internal control over financial reporting. 

“These findings are absolutely unacceptable, and audit firms must make changes to turn things around and live up to their responsibility to investors,” said PCAOB Chair Erica Y. Williams. “The PCAOB will continue demanding firms do better, conducting transparent inspections, and bringing strong enforcement actions where appropriate. We are also asking audit committees to hold firms accountable by posing tough questions to their auditors on behalf of investors.” 

The 2022 update and preview report also notes the following: 

  • PCAOB staff continued to identify auditing deficiencies that have recurred for many years. 
  • PCAOB staff expects that approximately 46% of the audits reviewed will have one or more deficiencies discussed in Part I.B of the individual firm’s inspection reports, up from 40% in 2021 and 26% in 2020. In Part I.B of the PCAOB’s inspection reports, PCAOB staff provides observations regarding instances of noncompliance with PCAOB standards or rules that do not relate directly to the sufficiency or appropriateness of evidence the audit firm obtained to support its opinion(s), such as critical audit matters, Form AP, and certain independence related deficiencies. 
  • Some audits have both Part I.A and Part I.B deficiencies, and so PCAOB staff expects that approximately 61% of the 710 audits the PCAOB reviewed in 2021 will have one or more Part I.A and/or Part I.B deficiencies, up from 55% in 2021 and 44% in 2020.
  • In their inspections, PCAOB staff observed positive practices that the staff believes may be effective in enhancing a firm’s quality control system and audit quality generally. The report discusses these good practices, particularly in the context of risk assessment, use of practice aids, use of individuals with specialized skill or knowledge, and supervision and review. 

Questions for Audit Committees

The 2022 update and preview report also highlights questions that audit committees should consider in discussions with independent auditors in light of increased PCAOB inspection findings. These questions include the following:

  • Has our audit engagement been inspected, and, if so, would you share the results? Were there any audit areas that required significant discussions with the PCAOB that did not result in a comment form?
  • Has the engagement partner been inspected on other engagements? If so, what were the results of that inspection?
  • What is the audit firm doing to address overall increased inspection findings?
  • Are there any audit procedures that are unnecessarily complicated or not “straightforward” because management is not providing clear, supportable information?

Inspections are critical to the PCAOB’s fulfillment of its investor-protection mission, and enhancing PCAOB inspections is a top strategic goal for the organization. In 2023, the PCAOB has rolled out several enhancements, including more information in PCAOB inspection reports regarding auditor independence and other key issues, new online tools to make deficiency information easier to find, and recent Spotlight publications providing PCAOB staff insights regarding topics such as public company audits involving crypto assets and audits of special purpose acquisition companies. 

Meanwhile, the PCAOB continues to execute on its other strategic goals, which include carrying out the most ambitious standard-setting agenda in the organization’s history and strengthening PCAOB enforcement to hold audit firms accountable when they put investors at risk by violating PCAOB rules and standards and other related laws and rules.

The 2022 update and preview report can be found at the Staff Publications page on the PCAOB website, along with other resources on the PCAOB’s activities and observations. Investors and other stakeholders can learn more about PCAOB inspections on our Basics of Inspections page


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, including compliance reports filed pursuant to federal securities laws.


PCAOB Office of Communications and Engagement
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