Anticipating improvement in inspection results, the Public Company Accounting Oversight Board is starting to think about how it might change its inspection approach as a result.

The PCAOB is beginning to see some “limited improvements” in its 2012 and 2013 inspections, said PCAOB member Jeanette Franzel in a speech to the Association of Government Accountants. Franzel said the improvements follow a spike in serious audit deficiencies in 2010 that persisted in 2011. “I am hopeful that with the significant audit quality and compliance efforts many firms are putting forth, we will start to see sustainable improvements in inspection results in the next year or so,” she said.

The board has not yet published reports from its 2013 inspections and so far has posted only one report on a major firm from its 2012 inspection cycle. For Deloitte, the PCAOB inspected the same number of audits in 2012 and 2011 but found deficiencies in 25 percent in the most recent year compared with 42 percent in 2011 and 45 percent in 2010. 

Improvement is getting the board thinking about altering its inspection process somehow going forward, although Franzel offered no specifics. “If we see significant improvements in the level of compliance with PCAOB professional standards on audits, the Board will have an opportunity to consider adjusting its inspection approach and methodology to take advantage of firms' more effective compliance approaches,” she said.

The board is working on a project to develop measures of audit quality that could prove helpful in establishing any possible new inspection approaches, said Franzel. “To the extent board inspections find improvements in firms' ability to design and effectively implement quality control systems that provide reasonable assurance of compliance with PCAOB professional standards, the board may have an opportunity to adjust its inspection approach and methodology to take advantage of those improvements in the future,” she said.

Separately, Franzel also said the board is giving some thought to the 923 audit firms that are registered with the PCAOB but do no audit work that is subject to PCAOB scrutiny. “The board is examining the extent of this practice and the risks that may arise from gaps in expectations about what a PCAOB registration may signify,” she said. Smaller firms have been known to tout their PCAOB registration as if it represents some kind of seal of approval, even when the PCAOB takes no action related those the firms until or unless they perform audit work in the capital markets that falls within the PCAOB's authority.