PCOAB Evaluates Auditors on Internal Controls

The Public Companies Accounting Oversight Board recently produced a report summarizing the findings of inspecting 275 audit reports of internal controls to evaluate how well public accountants were implementing PCAOB Standard 2. Emphasized for critique were four areas: integration of audits, use of a top-down approach to testing IC, level of use of other's work and testing at the account vs. the assertion level. Additional comment: some improvement was noted in the integration and top-down areas (perhaps because of added experience) and some lesser concerns included: better use of testing of management processing in tests of internal controls, greater use of benchmarking strategies for automated application controls and better monitoring of the May 2005 Policy Statement as a means to increase audit efficiency.

The report appears to emphasize a teaching approach rather than a critical approach to improving audit performance on internal controls. Given the relative newness of PCAOB 2, I find the teaching approach appropriate.