News & Insights

Auditor Liability Bulletin

June 7, 2024

PCAOB Board Member, George R. Botic, Delivers Remarks on the PCAOB’s 2022-2026 Strategic Plans, Tone at the Top, and Critical Audit Matters

On June 5, 2024, at the Forum on Auditing in the Small Business Environment and on Auditing Broker-Dealers, PCAOB Board Member George R. Botic delivered a speech on the role smaller audit firms play for investors and the Capital Markets. In his remarks, Botic provided a summary of the PCAOB’s 2022-2026 Strategic Plan and described its four main areas of focus, which include (1) modernizing standards while considering potential challenges for smaller firms, (2) enhancing inspections to make them more transparent and useful, (3) strengthening enforcement to deter violations and encourage quality audits, and (4) improving organizational effectiveness. Botic also noted the Board’s efforts to provide more transparency in its inspection reports with the inclusion of a new section on independence matters. He added that these efforts include a renewed focus on critical audit matters and encouraged firms to consider which matters meet the definition of CAMs. Finally, Botic emphasized the importance of firm culture and called the audience’s attention to SEC Chief Accountant Paul Munter’s recent statement on fostering a healthy “tone at the top” at audit firms, reported in the May 17, 2024, Auditor Liability Bulletin, highlighting how messages from firm leadership can influence a firm’s ability to perform quality audits.
On June 6, 2024, at the SEC and Financial Reporting Conference in Los Angeles, Botic delivered a speech on the importance of reporting critical audit matters. Botic said that the fundamental purpose of CAMs is to help bridge the information gap between public companies and investors, who heavily rely on CAMs to understand the audits performed for their benefit. Botic noted that, when the CAM disclosure standard was adopted in 2017, the expectation was that most audits would have at least one CAM but that, in practice, very few CAMs are disclosed in U.S. audit opinions and that the number is getting lower each year. Botic shared that, in response, the PCAOB has added a research project to its agenda on the communications of CAMs to understand the reason for the continued decrease on the number being reported each year and whether additional guidance or a modification to the standard is required. Botic concluded by encouraging firms to commit to the identification and reporting of CAMs.
The full June 5, 2024, speech is available here.
The full June 6, 2024, speech is available here.