On Oct. 31, the Public Company Accounting Oversight Board (PCAOB) released a supplement to its Staff Guidance Concerning the Remediation Process. The added guidance includes making the most of the remediation period and the possible effects of non-technical factors on persistent quality control criticisms, among other items. 

“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,” noted PCAOB Chair Erica Williams in a release. “The PCAOB encourages audit firms to apply this supplement to the staff guidance when addressing quality control criticisms.”  

Under the Sarbanes-Oxley Act and the PCAOB rules, the Board cannot disclose its criticisms of an audit firm’s quality control systems for at least 12 months after the Board’s initial publication of its inspection report of that audit firm. During those 12 months, the audit firm should remediate identified quality control criticisms. If the audit firm does not address any identified quality control criticisms to the Board’s satisfaction, the Board will then disclose the criticisms publicly. 

Initially published in 2013, the original staff guidance offers information for audit firms that got a final inspection report from the PCAOB that has any criticism of the firm's quality control system. Specifically, it elaborates on considerations that the PCAOB’s inspections staff has marked as relevant to its recommendations to the Board regarding whether the firms' remediation efforts were enough. 

Although it does not change or supersede the 2013 staff guidance, today’s supplement draws on the PCAOB staff’s experience since it was issued.   

In Feb. 2023, the PCAOB issued a Spotlight document titled “Additional Insights on the Remediation Process.” This document highlighted factors that the staff considers, specifically the design, implementation and effectiveness of a firm’s actions to remediate quality control deficiencies. Presenting added insights from the PCAOB’s years of evaluating remediation efforts, the Spotlight noted that PCAOB Inspections staff was reviewing the staff guidance to see if any changes should occur. 

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

• Starting the remediation process sooner to take advantage of the entire remediation period;  

• Planning to get the benefit of inspections staff feedback;   

• Implementing actions early enough so it can monitor their operation and include in the submission evidence that they are effective;   

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

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

The PCAOB’s remediation page contains the staff guidance and the 2023 Spotlight, which offer added insights into the remediation process and more materials about it.