Remote and offshore work could hurt audit quality, US regulator warns

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The head of the US audit regulator has warned that hybrid working and offshoring could undermine the quality of accounting firms’ work.

Erica Williams, chair of the Public Company Accounting Oversight Board, told accountants at a conference in Washington on Tuesday that a breakdown of the traditional apprenticeship model risked causing problems that would haunt auditors throughout their careers.

Her warning came after the PCAOB published a report on audit firm culture, which it commissioned a year ago after becoming concerned about a leap in deficiencies in audit work inspected by the agency.

“When we see deficiencies across a wide range of audit areas, we start to wonder whether the firm’s culture is promoting and prioritising the professional scepticism and care that is required to perform an audit,” Williams said at the Association of International Certified Professional Accountants event.

“Those we interviewed told us that the remote and hybrid work environment impacted their apprenticeship model for on-the-job training, the dissemination of culture, and professional scepticism.”

Williams also singled out a trend towards sending basic audit work to offshore or centralised “shared service centres”. Some people at audit firms interviewed for the PCAOB report said “the push for the use of shared service centres is removing foundational skills and experiences from firm personnel”, she said. “This lack of experience in basic audit skills could lead to additional difficulties as those individuals continue on in their careers.”

PCAOB inspectors have found flaws in more than two-fifths of the audits they examined in each of the past two years, which Williams has previously suggested could have been caused — but which should not be excused — by disruptions from the pandemic.

On Tuesday, she said that this year’s inspections would show a significant improvement, and she defended the work of the PCAOB from those who have criticised it for taking too aggressive a stance against the profession. Under her leadership, the agency has imposed more fines than ever on audit firms, and has written tougher new audit standards that have sometimes been opposed by the Big Four firms.

President-elect Donald Trump is expected to usher in a lighter touch across US regulatory agencies on returning to the White House in January, and has nominated a longtime PCAOB critic, Paul Atkins, to chair the Securities and Exchange Commission, which oversees the agency. Some critics have even argued that some or all of the PCAOB’s work should be transferred to the SEC.

“The PCAOB and the SEC share a common mission of protecting investors, and I think that investors are best protected when each of us bring our unique resources and expertise to the table,” Williams said.