PCAOB inspectors outlined their priorities for 2025 inspections in a Staff report published on December 9, 2024. The report highlights areas of inspection considerations including audit execution challenges, such as materiality and technology used in the audit; areas subject to new auditing standards; critical audit matters; use of technology by public companies (e.g., artificial intelligence); crypto assets; quality control procedures; and audit firm culture. The report additionally emphasized the importance of remediation of quality control criticisms.
In the report, Staff noted that inspections would focus on audits in industries and sectors where a higher number of deficiencies was previously found that are "more likely to have a going concern risk."
The report notes that the PCAOB will continue to prioritize inspections of financial-services sector audits, citing the continued impact of interest rates and commercial real estate exposure in loan portfolios and investment securities. The report also emphasized an attention to auditors' evaluation of significant assumptions used in the allowance for credit losses and the valuation of commercial mortgage-backed investment securities and evaluation of their clients' liquidity when evaluating the classification of investment securities.
Staff also indicated an emphasis on the information-technology sector due to its complex nature, inventory risks, and disruption to the supply chain. Staff added real estate as a sector of emphasis, noting that the long-term effects of the pandemic remain "uncertain" and that there was a heighted risk in the valuation of real estate assets.
The report also notes that there is a "target team" focusing on emerging audit risks that plans to consider the review of (1) the use of shared service centers, (2) "engagements where work is referred into the U.S. by other auditors," and (3) the use of software audit tools. The PCAOB release is here and the report is available here.
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