I fully support the recommendation before us today to strengthen and clarify our standards for audits involving multiple audit firms.
Similar to the improvements we made to our standards for auditing estimates and using the work of specialists implemented for 2020 audits, today’s action strengthens requirements in a complex audit area in which we have seen recurring deficiencies.
As companies continue to expand their operations across the globe, the extent and complexity of audits involving multiple audit firms has only increased. In 2021, multiple auditors were used in 26% of all Issuer audit engagements, and nearly 30% of these audits involved five or more other audit firms.
Working across multiple audit firms can raise challenges in coordination and communication, which can result in misunderstandings about the nature, timing, and extent of work performed by other auditors, and therefore may result in reduced audit quality.
It is thus important that the lead auditor adequately plan and supervise the work of other auditors. Today’s amendments increase and improve the lead auditor’s involvement in and evaluation of the work of other auditors to help ensure audit scopes are sufficient and the work is performed appropriately.
The amendments also provide for the lead auditor to perform specific procedures regarding other auditors’ understanding of and compliance with independence and ethics requirements and regarding the knowledge, skill, and ability of other auditors participating in planning and supervision activities.
Overall, I believe today’s amendments clarify and strengthen the roles and accountabilities of the lead auditor and other auditors, thereby improving audit quality.
Thank you to everyone that has provided us comments as we have worked to finalize this important project. Stakeholder input will continue to be invaluable as we pursue other projects to strengthen our standards as set forth in our recently released standard-setting and research agendas, including the important project addressing firms’ quality control systems.
I look forward to continued engagement with my fellow Board members, PCAOB staff, the SEC and all our external stakeholders as we work to further strengthen our standards to drive improved audit quality and investor protection.
Regarding today’s effort, I would like to recognize and thank all those at the PCAOB who have contributed — including my Board colleagues, the staff in our Offices of the Chief Auditor, Economic and Risk Analysis, and General Counsel, and in our Divisions of Registration and Inspections and Enforcement and Investigations. I would like to especially recognize those individuals from the Offices of the Chief Auditor and Economic and Risk Analysis currently on the project team: Barb Vanich, Stephanie Hunter, Dima Andriyenko, Hunter Jones, Andrew Cleve, Nayantara Hensel, Michael Gurbutt, Tian Liang, and John Powers. I would also like to thank the SEC’s staff for their support and assistance.
PCAOB Release No. 2022-002, Figure 2 & Figure 3