While companies and external auditors alike have responded admirably to the many challenges that arose in 2020, the Public Company Accounting Oversight Board (PCAOB) recently released a report that uncovered recurring problem areas in the financial statement audits of 2020. The internal audit function can help your organization face the issues identified in the PCAOB’s report by assisting with communication and coordination efforts during the financial statement audit process.
The PCAOB’s Spotlight: Staff Update and Preview of 2020 Inspection Observations gives an overview of the strengths and weaknesses noted in its 2020 audit inspections. In particular, the report discusses areas where external auditors gave an opinion that was not supported by sufficient audit evidence. These instances are termed “deficiencies.” The article found that most deficiencies were related to reporting of internal control assessments and revenue recognition; see the full article for more information about these and other deficiencies uncovered in this study.
Although this publication focuses on deficiencies of audit reports rather than deficiencies in financial reporting, the findings of this paper still have substantial ramifications for companies that undergo financial statement audits. Receiving a favorable audit opinion is an essential means of inspiring confidence in your stakeholders. However, audit opinions that are not founded on sufficient evidence can cast doubts on whether your financials are trustworthy. Clear communication during the audit process plays a critical role in ensuring that external auditors are able to provide an appropriate audit opinion on your financial statements. However, the intricacies of financial reporting and the nuances of individual companies can hamper exchanges of information between you and your external auditors. This is where your internal auditors can be a valuable resource.
Internal Audit can facilitate interactions with external auditors to help ensure sufficient financial statement audit support is available and provided during the audit process. Internal Audit is uniquely positioned to positively affect the audit process in this way. In this regard, they can leverage their current activities such as, for example, supporting the organization’s internal control evaluation and reporting process, expediting the financial statement audit process by coordinating with external auditors to provide SOX testing results and documentation/support, and (in some cases) assisting external auditors with performing financial statement testing in support of the financial statement audit.
PCAOB level audits can be stressful for an organization’s finance and accounting function. Having strong support from your internal auditors may help. Here at Chess Consulting, we offer comprehensive internal audit services, including external audit readiness support.