PCAOB Publishes New Supplement to Staff Guidance Concerning the Remediation Process

As mandated by the Sarbanes-Oxley Act and implemented by PCAOB rules, the Board cannot disclose its criticisms of an audit firm's quality control systems for a period of at least 12 months after the Board's initial publication of its inspection report of that audit firm. During that 12-month period, the audit firm is expected to remediate identified quality control criticisms. If the audit firm fails to address any identified quality control criticisms to the Board's satisfaction, the Board will then disclose those criticisms to the public.

"Making sure audit firms remedy defects in their quality control systems is an important way for the PCAOB to drive improvement in audit quality and protect investors," said PCAOB Chair Erica Y. Williams. "The PCAOB encourages audit firms to apply this supplement to the staff guidance when addressing quality control criticisms."

First published in 2013, the original staff guidance provides information for audit firms receiving a final inspection report from the PCAOB that includes any criticism of the firm's system of quality control. Specifically, it describes considerations that the PCAOB's inspections staff has identified as relevant to its recommendations to the Board concerning the sufficiency of firms' remediation efforts.

While not changing or superseding the 2013 staff guidance, today's supplement draws from the PCAOB staff's experience since the 2013 staff guidance was issued.

In February 2023, the PCAOB issued a Spotlight document - "Additional Insights on the Remediation Process" - highlighting factors that the staff considers, particularly related to design, implementation, and effectiveness of a firm's actions to remediate quality control deficiencies. Presenting additional insights gleaned from the PCAOB's years of evaluating remediation efforts, the Spotlight noted that PCAOB Inspections staff was reviewing the staff guidance to determine if any changes might be needed.

Following up on the 2023 Spotlight, the new supplement to the staff guidance highlights that audit firms, when addressing quality control criticisms, may benefit by considering the following:

1. Starting the remediation process sooner to take advantage of the full remediation period;

1. Planning ahead in order to get the benefit of inspections staff feedback;

1. Implementing actions early enough to be able to monitor their operation and include in the submission evidence that they are effective;

1. Considering whether certain quality control criticisms persist due to the influence of non-technical factors, such as a firm's culture; and

1. Understanding the limits of acceptable supplemental submissions after the submission deadline.

Visit the PCAOB's Remediation page to find the staff guidance, the 2023 Spotlight providing additional insights into the remediation process, and more materials related to remediation.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.