Are the external audit firms justified in complaining about the PCAOB inspectors?
In the past, management have justified their actions, when taken against their better judgment, on the grounds that “the auditors made me do it”. (Sometimes they refer to the internal auditors, sometimes the external auditors. In neither case are they justified for doing something they believe is wrong.)
Now, the audit firms are justifying actions on the grounds that “the PCAOB inspectors made me do it”. They use this to justify additional work that they agree with management is not necessary, higher costs, and so on.
The PCAOB has released guidance for audit committees on their inspection processes and what the directors should discuss with the external auditors.
I don’t know about you, but I have little patience with this blaming of the regulators. If the audit firms believe the PCAOB inspectors are being unreasonable, they should take it up with the agency’s leaders – and explain to their clients’ audit committees exactly what they are being asked to do that is unreasonable. They should not simply do additional, unnecessary work and pass the costs on to their clients.
For example, I have heard tales of ‘I can’t adopt this practice of reliance on management testing, even though it is advised in AS/5, because the inspectors will have a problem’. If I were on the audit committee, I would not accept that from the audit partner.
Are the PCAOB inspectors really unreasonable ogres? Or are the audit firm partners to blame because their work was deficient?
What should management and the audit committee do when the audit partner explains additional costs because of PCAOB demands?