The annual audit is one of the most complex periods in an accounting department — especially for public companies. Performing reconciliations, responding to the PBC list, drafting financial statements and disclosures and promptly answering additional auditor queries takes an enormous amount of time. Of course, your regular day-to-day responsibilities don’t get put on hold during this time.

As taxing as the annual financial audit has been in years past, all signs point to a more grueling experience in the coming year and beyond.

This article addresses why companies can’t expect the annual audit to be “same as last year” and how to proactively bolster your audit support systems.

All signs point to a tougher annual audit

The Public Company Accounting Oversight Board (PCAOB) recently reported that an increasingly large number of external audits lack sufficient evidence to support auditors’ opinions. According to a staff report, 61% of public company audit inspections have one or more deficiencies, up from 55% in 2021 and 44% in 2020.

The PCOAB Chair Erica Y. Williams called these findings “absolutely unacceptable” and said the PCAOB will continue to demand firms do better and bring enforcement actions where appropriate.

The findings surely aren’t due to a lack of interest in providing quality audits amongst big firms, but a product of the drought of available accounting talent. The rapid pace of baby boomers leaving the accounting profession and a lack of college students interested in pursuing an accounting degree or CPA licensure means audit firms now face a dual dilemma: finding the right talent and ensuring they have the capacity to manage the rigors of a thorough audit.

Many firms have determined they don’t have enough staff to take on new audit clients. Some public companies may be left scrambling looking for an available auditor, and those that can engage a firm should expect auditors to be extra thorough in their audit procedures.

Preparing for the annual audit

In previous years, your accounting team may have waited to hear from the auditors, expecting the annual audit to be similar to last year. However, that might not be the case anymore, so proactive preparation is critical.

Here are a few steps you can take now to start preparing for a demanding annual audit season.

• Reach out to your external auditors now. Proactive outreach to auditors is not just prudent; it's imperative. Engage with your auditors to understand their needs, the scope of applications under review and any shifts in materiality thresholds.
• Ask for the PBC list. The Prepared by Client (PBC) list is not merely a checklist; it's the blueprint for your audit process. Collaborate with auditors early and often to develop and refine this list so you can streamline the audit and ensure all necessary documentation is ready for inspection. This foresight can significantly reduce the friction and stress of the audit period.
• Stay on top of draft financial statements, technical accounting memos, 10-K support and disclosure checklists. Don’t put off drafting financial statements and other required documents until the last minute. Getting a head start on this kind of preliminary work now ensures your team can hit the ground running when the auditors are ready to begin fieldwork.

CBIZ ARC: Your public company audit support ally

Many companies may struggle to tackle preliminary work and provide the resources auditors need to accomplish their work. Whether those struggles are due to a skills gap or bandwidth issues, CBIZ ARC can be an ally for public companies.

We act as a bridge between your accounting team and the auditors and offer a suite of services designed to navigate the complexities of the external audit. From managing technical accounting memos and the PBC list to drafting financial statements and providing 10-K support, our expertise is your advantage.

Don't let the audit process become a labyrinth of last-minute scrambles and regulatory pitfalls. Connect with CBIZ ARC today. Let us help you prepare for the annual audit with foresight, expertise and precision that will stand up to auditor scrutiny and ensure a seamless audit experience.

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