PCAOB: The 11 Things Auditors Need to Fix

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• Use of other auditors: The inspectors have found some auditors apparently confused as to whether the firm should consider itself a principal or secondary auditor. This issue comes up for firms with few offices that need other firms to help them out.

• Use of the work of specialists: This area will receive much more attention as companies increase their use of the fair-value method of accounting, which involves more reliance on valuation specialists. Auditors need to evaluate the relationships between companies and their specialists; understand specialists’ methods and assumptions; and test the data that the issuer initially sent to specialists. However, inspectors have found that firms are not doing all of those procedures.

• Independence: The PCAOB has witnessed instances of firms negating their independence status from a company they audit by also: preparing that company's accounting records; preparing the source data supporting the company's financial statements; and providing book-keeping services, among other services that are not allowed under Securities and Exchange Commission independence rules.

• Concurring partner review: The inspectors have found that some firms have had ineffective reviews because the concurring partner lacked expertise and experience, and they were conducted at an improper time.