Are audits of ICFR improving?
Preliminary evidence indicates that audit work in the challenging area of internal control over financial reporting (ICFR) may be improving, PCAOB member Jeanette Franzel said during a recent speech.
The PCAOB issued Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting, in October 2013 to help auditors succeed in this challenging area.
ICFR also was identified as a judgmental or complex audit area on a Center for Audit Quality (CAQ) list of audit considerations for the 2014 audit cycle. The CAQ, which is affiliated with the AICPA, reiterated some of the same considerations mentioned in Staff Audit Practice Alert No. 11 for auditors to consider to address deficiencies related to internal control over financial reporting cited in PCAOB inspection reports.
At the American Accounting Association’s annual meeting Saturday in Chicago, Franzel said a “perfect storm of ICFR” was created by:
- The implementation of the 2013 internal control framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
- Steps taken by many external audit firms to respond to deficiencies noted in PCAOB inspections related to their audits of internal control.
“We are weathering the storm well, as auditors have focused on improving the quality of their audits of ICFR while companies have focused on adopting the 2013 COSO framework,” Franzel said. “However, we continue to see significant challenges with ICFR across the system.” Read more on the Journal of Accountancy.