Remote Work Challenges Audit Quality Amid Evolving Firm Cultures, PCAOB Report Reveals

WASHINGTON, 5 December 2024 – The Public Business Accounting Supervisory Board (PCAOB) has released a new Spotlight report that sheds light ​on the impact of audit firm culture on audit quality. The report, based on more than 150 interviews with executives and partners in the context of the involvement of large U.S. companies, highlights the factors that influence audit gaps, including the widespread impact of remote ​work, centralization and managerial accountability. The results show that ​remote ​and hybrid working arrangements have emerged as a major ​threat to maintaining the quality of audits, particularly among auditors at entry level.

Role of Culture Verification Signature

Culture, defined as the common values, ​attitudes and practices of an organization, is fundamental to the quality of the audit, ​according to the HPFB ​report. Companies with a strong culture of responsibility, integrity and professional scepticism are better placed to meet regulatory standards ​and conduct quality audits. However, the report indicates that mixed leadership messages, on-the-job training gaps and poor resource management have ​undermined audit results in some companies.

“Audit firm culture ​is laying the ​foundation for audit performance in ​our financial markets,” ​said Erica Y. Williams, President of the PCAOB. Bank leaders need to redouble ​their efforts to create environments that ​emphasize accountability and audit quality

Impact of distance work on learning models

Pandemic ​and post-seminar and hybrid changes disrupted the traditional ​critical ​learning model for audit. This model is based on personal interactions for mentoring, skills development and strengthening of corporate ​culture. According to the report, young auditors ​face significant learning gaps due to reduced ​office exposure, ​which has hampered the development ​of ​the basic ​knowledge needed ​to advance them.

While ​four of the six firms assessed implemented return-to-work policies, BBAP interviews revealed that more personal knowledge was essential. Respondents from all companies noted that remote agreements often result in knowledge gaps for junior staff, forcing senior managers to perform traditionally delegated tasks at lower levels, which compromises the effectiveness and depth of reviews.

“Our staff will never ​see tests in cash or abroad. This will create challenges when they ​become ​managers,” said one respondent.

These shortcomings pose a long-term risk to ​the quality of the audit, as new employees can fight with advanced ​responsibilities in the future.

Leadership and mixed messages

The report highlights the gap between the stated ​commitment of audit firm managers to quality verification and the incentives or sanctions they apply to promote high standards. Some respondents reported mixed signals from management regarding compensation adjustments related ​to audit actions. Others suggested that financial measures, such ​as sustainability and growth, be given priority ​over quality techniques in decision-making processes.

” Strong leadership must align incentives with behaviour ​that promotes the quality of the audit.

Mixed messages ​not only erode responsibility, but also promote cynicism among staff, further undermining firm culture.

Centralisation and standardization as drivers of coherence

The APAOB report identifies centralization and standardization as positive influences on audit quality. Companies with ​standardized processes, tools and models found fewer deviations in audit procedures and lower disability rates. Two companies highlighted in the report have set up high-quality centralised national networks, allowing for ​consistent application of audit ​practices in all ​geographical areas. ​However, other ​companies are still moving ​towards centralized models, finding the resistance and fatigue of employees in the midst of these changes.

“Standardization of parameters and tools is essential ​to reduce variability and ensure consistency,” said an audit leader.

However, the challenges of adapting to new systems ​underscore the need for prudent change management to maintain morality and commitment.

Shared Service Centres: Cost-Effective

The increasing use of shared ​service centres for low-risk audit tasks has been another point of contact for the findings of the OCAP. While the ​SSC ensures ​cost-effectiveness and standardization, ​respondents expressed concern that this model would eliminate the key experiences of junior auditors. Failure to be exposed to core audit tasks, such as cash analysis, may affect their ability to perform or review complex ​audit procedures as they progress in their ​careers.

In addition, some respondents expressed concern about the ​pressure to maximize the use of SSC to improve ​profitability. While some companies have taken steps to integrate SSC resources into their teams through ​training and collaboration, ​others face challenges in reconciling efficiency and skills development.

Resource management and skills constraints

Effective ​management of resources is critical to the quality of the audit, but the ​AAB report highlights significant gaps in this ​area. ​Participants mentioned staff ​shortages, competition issues and resource allocation as contributing factors to audit deficiencies. It ​should ​be noted ​that ​some companies do not ​have clear documentation of the skills provided for each category of staff, which further ​complicates the processes of evaluation and ​promotion of results.

Negative improvements in audit quality, ​such ​as deficiencies in inspection and violations of independence, are not always ​attributed to individual responsibility. ​In many cases, companies delay performance evaluations, which makes it difficult to quickly ​address the gaps. On the contrary, the positive ​evolution of audit quality is ​often ​not recognized, creating ​a ​culture where penalties exceed rewards.

What He Reads

The PCAOB report serves as an appeal to ​audit firms ​to reassess their cultures and practices. Strengthening learning models, aligning incentives with quality results and resolving resource problems will be key measures to improve audit quality. The shift to hybrid and distance work ​underscores the importance of ​innovative solutions to fill training gaps and preserve business culture.

As audit firms face ​these ​challenges, the Office remains committed to working with stakeholders to explore the behaviours and practices that influence the quality of the audit. The findings highlight ​the urgent need for leadership to prioritize long-term investments in training, technology and culture ​to preserve the integrity of the audit profession.