Turning PCAOB Inspection Findings into Audit-Readiness

After several years of elevated Public Company Accounting Oversight Board (PCAOB) inspection deficiency rates, recent data show meaningful improvement, particularly among the largest firms. For audit committees and management teams, PCAOB inspection results can be a useful conversation starter with external auditors. Companies may benefit from discussing their auditor’s inspection experience, common inspection themes, and areas of recurring challenge, including particularly complex estimates, revenue, business combinations, financial instruments, and ICFR. Those discussions can help management identify where its own documentation, controls, accounting analyses, or audit support may need to be strengthened before year-end.

The share of audits with at least one Part I.A deficiency climbed from 29% in 2020, to 34% in 2021, 40% in 2022, and ultimately 46% in 2023. While 2024 saw a modest improvement, with the deficiency rate dipping to around 39%, understanding the areas that lead to findings can give companies insights to help them prepare for upcoming audits. A Part I.A deficiency does not necessarily mean the issuer’s financial statements were materially misstated or that the auditor’s opinion was incorrect. Rather, it means the PCAOB inspectors concluded that the audit firm did not obtain sufficient appropriate audit evidence to support its opinion in the area reviewed.

The following chart illustrates the trend in reviewed audits with at least one Part I.A deficiency from 2020 through 2024.

Where Are the Common PCAOB-Identified Deficiencies?

Several factors have contributed to the elevated rate of audit deficiencies in recent years:

• Complex Audit Areas, Management Estimates and Underlying Data: Many deficiencies occur in inherently complex, high-risk areas that require significant auditor judgment, including estimates, valuations, revenue recognition, inventory, business combinations, goodwill and long-lived assets, loan loss allowances, and financial instruments. These areas often involve sophisticated assumptions and substantial supporting data, raising the bar for clear documentation, management review controls, and sufficient audit evidence.
• Business Combinations: Business combinations, by their nature, impact many accounts and include a broad spectrum of accounting estimates, including fair value and useful lives. Areas of PCAOB findings included procedures to test valuation and allocation of purchase accounting, including information used for valuations and other aspects of acquisition accounting such as contingent consideration.
• Long-lived Assets, Goodwill, and Intangible Assets: Impairment analyses for long-lived assets, goodwill, and intangible assets often require significant judgment. Management typically needs to support both the qualitative considerations and, when required, the quantitative assumptions used in the analysis, including forecasts of revenue, operating performance, and cash flows. When valuation specialists are involved, companies should be prepared to explain the key assumptions, data sources, and review controls supporting the specialist’s model and resulting fair value conclusions.
• Expanded Inspection Focus Areas: The PCAOB has also broadened the scope of inspections to emerging risk areas. For instance, cryptocurrency-related transactions have been highlighted as a new audit concern, given factors like high volatility and limited transparency that can complicate auditing digital assets. Auditors may face deficiencies if they lack the specialized expertise or tools to appropriately audit these emerging or specialized areas.

Recent PCAOB commentary has increasingly emphasized firm-wide systems of quality, leadership accountability, culture, supervision, training, and consistent execution — not only isolated engagement-level issues. For audit clients, the practical implication is that auditors may continue to focus on the quality and consistency of audit evidence, particularly in complex or judgmental areas.

Implications for Companies

What does this trend mean for companies that undergo audits? In short, expect more scrutiny and more rigorous audit procedures. With PCAOB inspectors finding shortcomings, audit firms will continue to tighten their processes and bolster quality. If you are a public company, your auditors may request additional documentation and perform extra testing to meet these expectations. For companies, the most actionable takeaway is to focus on areas that are inherently complex, judgmental, or documentation-intensive such as revenue recognition, accounting estimates, business combinations, impairments, debt and equity instruments, leases, taxes, and ICFR. Stronger up-front technical analyses, clearer management review controls, and more complete audit support can help auditors evaluate these areas more efficiently and reduce late-cycle surprises.

Importantly, private companies should also take note: heightened focus on audit quality does not stop at the public markets. Peer reviews and regulatory scrutiny are encouraging firms to apply improved audit rigor across the board, including their private company engagements. Having a competent, well-prepared finance team will help private businesses meet rising audit expectations. For example, ensuring strong internal controls, thorough documentation, and up-to-date accounting expertise can preempt many potential audit issues.

Many companies face bandwidth constraints during year-end reporting, transactions, or audit preparation. External advisors can help supplement internal resources by preparing technical accounting analyses, improving documentation, and supporting audit-readiness efforts.

How CBIZ FAAS Can Help Strengthen Your Financial Reporting

If your organization lacks the bandwidth or technical expertise to address these areas, an experienced outsourced accounting professional can provide targeted support by tackling complex accounting tasks, supporting audit-readiness efforts, or filling interim staffing gaps during major transactions or growth phases. CBIZ FAAS can help management teams turn audit-quality themes into practical audit-readiness actions. That may include preparing technical accounting memoranda, strengthening documentation for significant estimates and complex transactions, evaluating management review controls, improving the completeness and accuracy of audit support, and helping finance teams prepare for auditor requests before year-end deadlines intensify. This support is designed to complement, not replace, the role of the external auditor while helping management fulfill its responsibilities for accurate financial reporting and an effective control environment.

Our CBIZ Financial Accounting & Advisory Services (FAAS) team is available to help ease your financial reporting burden by working alongside your operations. We leverage broad national resources and deep technical experience in areas like internal controls, complex accounting, and audit preparation to help you strengthen your financial processes and confidently meet escalating audit demands. Contact CBIZ FAAS to learn how we can support your accounting and reporting needs with practical solutions and added expertise.