“We have heard some concern that auditors are not consistently effective at assessing risk and then responding appropriately,” said Chief Auditor Thomas Ray of the Public Company Accounting Oversight Board (PCAOB) to its Standing Advisory Group last week.

Additionally, our inspectors have observed some cases in which auditors did not respond appropriately to fraud risk factors, [as well as] some cases in which auditors appear to have approached their consideration of fraud as an isolated, mechanical process rather than an integral part of the audit.

In addition to a risk-assessment project, the Board’s 2008 standards-setting priorities will include “keeping our eyes” on fair value developments, Ray said.  “We have been evaluating the existing …standards on auditing estimates, auditing fair values, and using the work of specialists” to determine if the Board needs to amend its standards and/or issue further guidance.  While SFAS 157 will make some aspects obsolete, most of the PCAOB standards will still apply to the new accounting rules.  Eventually, the Board will update its standards, Ray predicted, “some time in the next twelve months.”  For his complete statement, click here. 

More PCAOB news:  Last week, the Board issued its inspection of PricewaterhouseCoopers LLP, noting several deficiencies in the firm’s audits of accounts receivable, goodwill impairment, and mortgage servicing rights.  All PCAOB reports are available here.  The Board also published for public comment staff guidance on auditing internal control over financial reporting in smaller companies.  This week, the Board identified the top 11 inspection issues—including business combinations, asset impairment, and use of specialists—in its report on U.S. firms that perform fewer than 100 audits; for more information, click here.