Investors have told the Public Company Accounting Oversight Board they want a better view into audit inspections with more transparency in the reporting of inspection outcomes and some insight into whether audit quality is improving.

The PCAOB met with its Investor Advisory Group to gather views on a number of ways the board is considering changing the way it reports on the results of its routine inspections of audit firms. “Improving the timeliness, content, and readability of reports is a near-term priority of the board,” said PCAOB member Steve Harris.

Members of the IAG told the PCAOB they're frustrated that they can't tell by reading inspection reports whether a given firm or the profession as a whole is making improvements in audit quality. The PCAOB's inspection process is not meant to assess audit quality, but to root out audit problems that might be indicative of quality control problems at the firms. “We're not trying to find every failed audit out there,” said Helen Munter, director of inspections and registration at the PCAOB. “We're trying to find defects in the quality control system.”

IAG member Joe Carcello, professor at the University of Tennessee and executive director of its Corporate Governance Center, says the board should consider a number of alternative approaches to inspections to help capital markets gauge the quality of auditing, such as performing random inspections instead of following a strictly risk-based approach in search of audit problems. The board could compare audits with and without deficiencies to try to identify where or how audits break down. The board also could compare its own inspections with those performed by the firms to help determine if firms are rigorous enough on themselves internally. “This is something that is important to capital markets,” he says. “Is audit quality getting better or worse? We just don't know.”

Another IAG member, Lynn Turner, former chief accountant at the Securities and Exchange Commission, says investors deserve to know the names of companies whose audits the PCAOB has identified as deficient. “The report loses most of its value if you don't give us a company name,” he says. He also wants to know the name of the audit partner behind failed audits. “You withhold that information from us.” He says the board could also make inspection reports more meaningful if inspectors disclose more detail about the deficiencies they find, and some data about how many audits a given firm performed during the time period inspected.

Barbara Roper, a director at the Consumer Federation of America, says investors deserve to know more about the remediation process, which is almost entirely private between firms and the PCAOB under Sarbanes-Oxley rules. Where inspectors find quality control problems, firms are given 12 months to remediate, after which the PCAOB can publish its concerns if they are not addressed satisfactorily. “We're seeing the same problems over and over again,” despite the apparent remediation effort that is going on behind the curtain, she said. Turner also chided the PCAOB that it so far has given firms far more than 12 months to address problems before making reports public, doing a “great disservice” to audit committees that want and need to know more about problems their particular audit firms may be having.

Additional ideas from members of the IAG included:

more information about where auditors had difficulty with assessing management's critical accounting estimates;

more data or information that would enable investors to compare audit firms;

more guidance to audit committees on how they can interact with audit firms based on inspection findings;

a provision for each issuer to see the results of any inspection that might have been performed on their own audit.