PCAOB Increases Auditors’ Work

Have you been told your audit fee is going to increase because the audit team has to do more work due to PCAOB inspection findings or audit alerts? This seems to be a common refrain I hear from a lot of preparers when I talk about the COSO 2013 ICIF. If you reacted by blaming the PCAOB for this increased cost, you may be on the wrong track.

I am sure your auditor explained that the PCAOB sent out an inspection finding to their firm or an audit alert to all auditors and that is causing the increased work, but this is where a little knowledge can go a long way. Instead of wondering how the PCAOB can issue rules that increase costs without going through a formal rule-making process that requires a comprehensive cost/benefit analysis, you need to realize that inspection findings and audit alerts do not make new rules at all. These two documents instead explain cases where the auditor was not following the rules and standards already in place for auditors of public companies.

So, if the auditor is telling you that findings or alerts are resulting in increased fees, what they are really telling you is that they have not been performing an adequate audit of your internal controls in the past. That leads to two possibilities. One, your audit team did not understand the auditing standards and therefore completed a substandard audit or two, your audit team knew the rules and decided to cut corners in order to low-ball the bid for your work, or increase the firms margins on the work performed.

What do you do then if you are being told by your auditor that they need more money for increased work over testing internal controls? I think its time to have a little fun. Ask your auditor if they were cutting corners, deliberating doing a bait and switch with a bid they knew they could not meet, or just simply incompetent. You still might end up agreeing to pay a little more, but at least you can make your engagement partner sweat!

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