Is Your Auditor Improving?

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The academics' sample included some of the PCAOB's evaluations of the Big Four's work, but was mostly made up of smaller audit firms. The PCAOB inspects auditors with more than 100 issuers annually, but inspects the smaller firms only once every three years.

Following the collapse of Enron and impending demise of Arthur Andersen, Congress eschewed the audit firms' previous method of self-regulation through peer reviews as insufficient. The result, of course, was Sarbox, which created the PCAOB and its review process. Some firms still conduct peer reviews, which are available on the Website of the American Institute of Certified Public Accountants, but the PCAOB's take on an audit firm is now deemed the ultimate authority.

Lennox still sees value in the peer reviews for offering what the PCAOB reports do not: evaluative summaries of audit-firm quality by sharing either an unmodified, modified, or adverse opinion. However, the AICPA has proposed changing its format, which could mean the reports will "not be as informative," he says.

As a former auditor himself in the U.K. offices of KPMG, Lennox has long been reviewing the scrutiny the audit firms receive from peers and, now, the PCAOB. He believes the current level of scrutiny is appropriate, but that the PCAOB's current methods are not giving a full picture of each firm's "future quality."

While that leaves the auditors' clients without the information they may need to feel confident in their external auditor, Lennox's research affirms that the reports are leading to improvements in quality regardless. For its part, the PCAOB believes progress is being made. "After more than three years of conducting inspections, I think both our inspections and firms' own initiatives are driving improvements," said board member Charles Niemeier in an interview with CFO.com earlier this year. "That doesn't mean firms don't still have further to go. Nor does it mean that new challenges won't continue to require vigilance to maintain high audit quality."