Dive Brief:
- The quality of audits by U.S. accounting firms of all sizes has recently improved, the Public Company Accounting Oversight Board said, noting that so-called Part I.A deficiencies, in which auditors fail to adequately support their findings, fell to 23% of total audits in 2025 from 38% the prior year.
- Among the Big Four firms, which audited roughly 80% of the market capitalization of U.S.-listed companies, Part I.A failures fell to 8% last year from 20% in 2024, the PCAOB said.
- The review of Part I.A failures is part of efforts by the board to upgrade its inspections process, PCAOB Chairman Demetrios Logothetis said. The effort is “critical to fulfilling our mission as super intelligence and the digital age continue to reshape the auditing profession at an unprecedented pace,” he said in a statement.
Dive Insight:
Sustained efforts in quality control, stricter accountability and the use of technology have helped reduce the incidence of Part I.A audit deficiencies, the PCAOB said in its report.
In addition, some accounting firms have measured workloads to determine whether partners are approaching the limit to their capacity for audit engagements, the board said.
Accounting firms have also sharpened their focus on training in revenue recognition, estimates, fraud considerations and internal control over financial reporting (ICFR), according to the PCAOB.
Some “firms implemented training targeted to inspection findings that address root causes to prevent repeat deficiencies,” the board said.
Accounting firms have also reviewed whether employees had the industry or subject-matter expertise essential to the audits, while others have encouraged staff to consult with specialists in an industry or subject who are assigned to answer complex questions, according to the PCAOB.
Finally, “firms appear to be strengthening leadership accountability for audit quality, including potentially in preparation for the effective date of QC 1000, A Firm’s System of Quality Control,” the board said.
The Big Four accounting firms this month called on the Securities and Exchange Commission to approve rule revisions by the PCAOB that would soften quality control safeguards for audits.
In comment letters filed at the SEC, KPMG, PwC, Deloitte and EY said the PCAOB amendments to QC 1000 ease compliance burdens without undermining safeguards for investors.
The PCAOB changes, as adopted by the board last month and scheduled to take effect on Dec. 15, would drop the requirement that firms create a so-called External QC Function if they published more than 100 audits during the previous calendar year. The external overseers would assess an auditor’s internal evaluation of its quality controls.
The revisions would also scuttle the “design only” rule requiring an accounting firm to expend time and money creating a quality control framework even if it did not audit publicly traded companies. A firm would only need to set up a framework if it began such audits.
