Basics of Inspections
Inspections: An Overview
The PCAOB inspects registered public accounting firms to assess compliance with the Sarbanes-Oxley Act, the rules of the Board, the rules of the Securities and Exchange Commission, and professional standards, in connection with the firm's performance of audits, issuance of audit reports, and related matters involving U.S. public companies and broker-dealers. The purpose of a PCAOB inspection is to accurately assess, drive improvement in, and communicate audit quality.
Our inspections are designed to review portions of selected audits of public companies traded on a U.S. exchange (referred to as “issuers”) and to evaluate elements of a firm’s system of quality control. Each PCAOB inspection results in a report, specific to the portions of each audit firm inspected, which may summarize identified deficiencies.
You can find a more technical or detailed description of inspections on our Inspections Procedures page.
How are audits selected for inspection?
The PCAOB selects audits for inspection using both risk-based and random methods. Most selections are based on an internal evaluation of audits believed to present a heightened risk of material misstatement. Focus is also placed on risk factors including economic trends, industry developments, market-capitalization size and/or changes, audit firm and partner, and inspection history. The remaining audits are selected randomly to provide an element of unpredictability. The inspected firm has no opportunity to limit or influence the PCAOB’s selections.
Are the same number of firms inspected each year?The actual number of firms that the PCAOB regularly inspects fluctuates as there are changes in registered firms and which registered firms issue audit opinions. In general, the PCAOB inspects each firm either annually or triennially (i.e., once every three years). If a firm provides audit opinions for more than 100 issuers, the PCAOB inspects them annually. If a firm provides audit opinions for 100 or fewer issuers, the PCAOB, in general, inspects them at least triennially.
2019 Annually Inspected Firms
- BDO USA, LLP
- Cohen & Company, Ltd.
- Crowe LLP
- Deloitte & Touche LLP
- Ernst & Young LLP
- Grant Thornton LLP
- KPMG LLP
- MaloneBailey, LLP
- Marcum LLP
- Moss Adams LLP
- PricewaterhouseCoopers LLP
- RSM US LLP
What does an inspection entail?
An inspection does not involve the review of all of the firm’s audits, nor is it designed to identify every deficiency or cover all areas of the selected audit.
While inspections vary by firm, we may focus on an auditor’s risk assessment processes, financial reporting and audit areas affected by economic trends or pressures, audit areas that present challenges and significant risk, new accounting standards, and areas of recurring audit deficiencies. Common inspection findings have included deficiencies in auditing revenue recognition; allowance for loan losses; other accounting estimates, including fair value measurements; and internal controls over financial reporting (ICFR), particularly related to management review controls.
Additionally, we review the firm’s system of quality control, including areas such as the firm’s management structure and processes (including tone at the top), practices for partner management, policies and procedures for an issuer’s acceptance and retention, internal inspections programs, how the firm responds to deficiencies in its audit quality, and independence policies and procedures.
For each audit area selected, the inspection team reviews the engagement team's work papers and interviews engagement personnel regarding the procedures performed in those audit areas.
If a potential deficiency is identified, inspectors discuss the matter with the firm and may review additional audit documentation. If the inspection team still believes that a potential deficiency exists after its discussion with the firm and review of any additional audit documentation, it will provide the firm with a written comment form on the matter. The firm is allowed the opportunity to provide a written response to the comment form.
For the audits of brokers-dealers, the PCAOB conducts inspections under an interim inspection program to assess compliance of registered public accounting firms and their associated persons with the Sarbanes-Oxley Act, the Board's rules, the SEC's rules, and professional standards in connection with the performance of audits, issuance of audit reports, and related matters involving broker-dealers.
Find more information on our inspections of audits of broker-dealers.
On our Resources section, you can find useful reports, publications, our Spotlight series, and other staff-prepared documents on topics related to our inspections and other oversight activities.
What happens if there is a deficiency?
Any deficiencies identified through an inspection are evaluated for inclusion in the firm’s inspection report. Composed of five main parts, the report may differ slightly depending on if the firm is an annually inspected firm or a triennially inspected firm.
Learn more about PCAOB inspection reports in the Guide to Reading the PCAOB’s New Inspection Report.
A PCAOB inspection report is not intended to serve as a balanced report card or overall rating tool. An inspection report should not be interpreted to imply the Board has reached a conclusion about a firm’s quality control policies, procedures, or practices. The fact that we include a deficiency in a report—other than those deficiencies for audits with incorrect opinions on the financial statements, ICFR, or incomplete reporting of material weaknesses in ICFR—does not necessarily mean that the issuer’s financial statements are materially misstated or that undisclosed material weaknesses in ICFR exist.
How are firms outside of the U.S. inspected?
In addition to inspecting registered public accounting firms located in the U.S., the PCAOB also inspects registered public accounting firms located in non-U.S. jurisdictions to assess those firms’ compliance with relevant laws, rules, and standards in connection with their performance of issuer audits and issuance of audit opinions.
The PCAOB often enters into formal cooperative arrangements with foreign audit regulators in order to minimize administrative burdens and potential legal or other conflicts that non-U.S. firms may face in the non-U.S. jurisdiction.
To date, we have conducted inspections of one or more firms in over 50 non-U.S. jurisdictions. We have worked closely with our international counterparts in many of these jurisdictions on joint inspections as well as enforcement matters, and we have built constructive relationships that facilitate meaningful cooperation.
Find additional information on PCAOB inspections of non-U.S. firms and jurisdictions.