In Brief

The coronavirus (COVID-19) pandemic created a new working world for businesses, accounting firms, and government. Most offices, including CPA firms and the PCAOB, pivoted to remote work. Unprecedented labor shortages meant auditors had to do the same work with fewer people. In this article, the authors examine recent PCAOB reports to investigate the pandemic’s effect on the auditing profession. A focus on the reports of the largest firms, and the specific deficiencies found, permits the identification of industries that have been of greatest concern to the PCAOB. Finally, the authors discuss the changes that have taken place at the PCAOB and how they may have also impacted inspection results.


In mid-March 2020, most businesses in the United States shut down due to the COVID-19 pandemic. On March 18, the PCAOB announced the closing of its offices and a pivot to remote work. In May 2020, EY announced in a firmwide call that staff were not allowed to visit client sites unless COVID-19 safety procedures were in place (Adrienne Gonzalez, “EY Announces a Three-Phase Plan For Staff to Return to the Office Once this Corona Thing Settles Down,” Going Concern, May 6, 2020, All this meant that the business of auditing was not business as usual.

In most audits, public company financials, internal controls, and inventory were now reviewed remotely. The Wall Street Journal reported in April 2020 (Mark Maurer, “Remote Work, Coronavirus Disruption Pose Hurdles for Auditors,” Wall Street Journal, April 1, 2020, that firms were especially worried about auditing internal controls, reviewing inventory counts, and assessing going concern issues. Auditors noted that when clients moved to remote work, many companies changed how internal controls were enforced and, frequently, who was enforcing them. Because of layoffs and resignations at the beginning of the pandemic, in many cases employees newly responsible for internal controls were less experienced and even outside of the original department. The Wall Street Journal reported in February 2020 that physical inventory counts in China were nearly impossible for auditors because of travel bans administered by firms and governments (Mark Maurer, “How Coronavirus Could Disrupt the Auditing of Companies,” Wall Street Journal, Feb. 3, 2020, KPMG released information to its auditors in March 2020 regarding inventory counts, emphasizing that it was possible that physical inventory counts would not be completed on the same date as the balance sheet or financial statements. It was also possible that KPMG auditors would not be able to attend physical inventory counts. KPMG offered several alternatives to its employees in lieu of physical counts, including using video calls to attend counts remotely (KPMG, “Chapter 2: Physical Inventory Count amid Covid-19,” March 2020,

CPA firms were right to be concerned about auditing internal controls, inventory counts, and going concern issues. These issues are included in U.S. GAAS that the PCAOB uses in its review of firms’ work. Standards related to these three concerns and GAAS standards for audit documentation, evidence, and evaluation of results made up 32% of 2020 inspection deficiencies for all PCAOB audited firms, as shown in Exhibit 1.

Exhibit 1

Percentage of Auditing Standard Deficiencies in 2020 Inspections

PCAOB Industry Focus and Trends

The COVID-19 crisis that began in spring 2020 was still at the top of mind the following year. Workplace shutdowns and work-from-home mandates were still commonplace. Although the first vaccine was made available to high-risk individuals in December 2020, not until April 2021 did all U.S. adults become eligible for the vaccine, per a presidential directive. In the same month, the PCAOB released a “Spotlight” on the focus of its inspections for the year (“Spotlight: Staff Outlook for 2021 Inspections,” April 2021, In this release, the PCAOB mentioned a focus on specific industries that were likely affected by the COVID-19 pandemic. These industries were: “transportation, entertainment, hospitability, manufacturing … retail … and commercial real estate” (p. 4). Although the PCAOB focused on these industries across all firms, it released industry detail for only the 11 largest firms, which are the focus of this section.

In a review of previous-year inspections, the PCAOB’s attention on the consumer discretionary sector in 2020 can be seen, with the average number of industry audits growing from 2.55 issuer audits inspected in 2019 to 6.5 in 2020 (Exhibit 2). The consumer discretionary sector contains the automobile, hospitality, entertainment, and retail industries, among several others (Louis Bellucci, “Sector Primer Series: Consumer Discretionary,” S&P Dow Jones Indices, June 2019, In spring 2020, CPA firms were concerned with auditing inventory during the pandemic since it would likely have to be done remotely. Of the 11 firms reviewed here, four had deficiencies in the consumer discretionary industry during 2019 and 2020 inspections. Of the 18 separate consumer discretionary deficiencies cited by the PCAOB for these firms in 2019 and 2020, 22% were deficiencies involving inventory (“Firm Inspection Reports,” as of Jan. 1, 2022, Only revenue deficiencies were higher, at 28% of consumer deficiencies for these 11 firms (Exhibit 3). It is likely that there will be more inventory deficiencies in upcoming inspection reports.

Exhibit 2

Average Annual Inspections by Industry for 11 Largest CPA Firms

 Industry; 2016; 2017; 2018; 2019; 2020 Benefit Plans; 0.75; 0.25; 0.33; 0.90; 0.00 Communications; 0.50; 0.60; 2.00; 2.14; 2.33 Consumer Staples; 1.75; 1.25; 1.22; 1.67; 2.67 Consumer Discretionary; 3.82; 3.60; 3.45; 2.55; 6.50 Energy; 3.60; 3.78; 2.50; 1.90; 3.67 Financial Services; 6.36; 6.30; 5.82; 6.18; 6.50 Healthcare; 2.90; 4.50; 3.60; 5.89; 7.67 Industrials; 4.45; 4.60; 4.36; 4.45; 5.67 Information Technology; 5.90; 5.22; 5.00; 5.80; 5.50 Materials; 2.22; 1.70; 1.91; 1.78; 1.17 Real Estate; 0.38; 1.50; 1.00; 1.50; 1.67 Utilities; 1.00; 1.20; 1.40; 1.20; 0.50 Other; 0.25; 1.25; 1.20; 1.50; 1.00 Overall; 3.16; 3.12; 2.88; 3.13; 3.70 Note: The eleven firms are: BDO USA, LLP; Crowe LLP; Deloitte & Touche LLP; Ernst & Young LLP (EY); Grant Thornton LLP; KPMG LLP; MaloneBailey LLP; Marcum LLP; Moss Adams LLP;

Exhibit 3

Breakdown of Healthcare and Consumer Discretionary Deficiencies in 2019 and 2020 Inspections for 11 Largest CPA Firms

In the PCAOB report based on 2020 inspections, inventory is mentioned as a continuing issue. Specifically, the PCAOB noted that when auditors reviewed inventory numbers that were controlled by cycle counts, they “limited their procedures to inquiries of management” (“Spotlight: Staff Update and Preview of 2020 Inspection Observations,” PCAOB: Public Company Accounting Oversight Board, October 2021,, p. 10) instead of performing procedures to test the reliability of the counts themselves. With remote work still common in 2021—and likely 2022—it will take extra focus by audit firms to correct inventory count deficiencies. The good news is that although the number of inspections within the consumer discretionary sector increased in the 2020 inspection year for the 11 firms reviewed, the percentage of deficiencies did not increase to the five-year highpoint in 2016 (Exhibit 4).

Exhibit 4

Ratio of Average Number of Deficiencies to Average Number of Inspections, for 11 Largest CPA Firms

Though not specifically mentioned by the PCAOB in its 2021 spotlight nor its 2020 observations release, healthcare industry inspections rose in 2019 and 2020. During 2016 through 2018, an average of 3.67 industry inspections per year was recorded; the 2019 average increased to 5.89 inspections, rising to 767 in 2020. Although healthcare deficiencies for the 11 largest firms have not had a smooth downward trend in the last five years, it is encouraging that the percentage of 2020 deficiencies was still lower than the 2016 and 2018 highpoints (Exhibit 4). The largest deficiency by far is for revenue (Exhibit 3). Of the 38 separate deficiencies in the healthcare sector, 32% was for revenue for the 11 firms reviewed (“Firm Inspection Reports,” as of Jan. 1, 2022, The healthcare industry has received attention in the news in the last two years because of the toll corona-virus has taken on its frontline workers. The shortage of healthcare workers will likely continue for years to come (John Derse and Tanner Bateman, “US heathcare labor shortages compounded as a result of the pandemic,” Mercer US, Sept. 30, 2021, A continual focus by the PCAOB on this industry would not be surprising.

Auditing During COVID-19: Adjusting to the New Normal

Two years into the COVID-19 pandemic, auditors have found how to work in this new environment—be intentional in everything they do. In a conversation with the authors, a senior manager at one of the 11 largest accounting firms said that, when COVID-19 arrived with its fury, a plan had to be developed around how to continue working amid all the chaos. Auditors had to think beyond laptops and online meetings. They had to discover ways to create the rapport and relationships that come from stopping in to say hello on the way to grab coffee or chatting in an elevator on the way to lunch. Brainstorming and collaboration had to be done within individual firms, and the profession as a whole, to understand how to thrive in the new environment.

Nearly two years later, a cadence exists between auditors and clients. Virtual calls allow auditors to spend time with more clients in the same week. In the past, auditors would spend one or two weeks at a client site before moving to the next. Now auditors can spend two days being very intentional working with one client and then spend the remaining days working with another client. This can happen over a few weeks, allowing more facetime between auditors and clients. Though not ideal for all, some clients prefer this method and are requesting virtual audits for 2022.

When asked about inventory reviews, the senior manager said that after some trial and error, technology made count reviews unproblematic and reliable. The requisite inventory lists and virtual warehouse tours allow her to ask for boxes to be opened and UPCs (Universal Product Codes) to be scanned. The virtual tours, combined with analytics and price checks, make it easy to be comfortable with the results.

Going concern was a worry at the beginning of the pandemic. The global crisis left no business untouched; there was a lot of uncertainty in the unknown. For the businesses that have made it through the last two years, the key is to be sure that managements have plans in place to tackle labor shortages, supply chain issues, and price inflation. COVID-19 allowed for new and different perspectives. It gave this senior manager the ability to have full, candid, and more rigorous conversations with clients. She and clients became more intentional about what they discussed, allowing for deeper conversations, and better relationships. She said that COVID-19 challenged auditors to go beyond the numbers and really understand what their clients do every day.

The senior manager said the most difficult part of remote work is training new team members. Pre-COVID, audit team swould sit together in physical audit rooms and the morejunior members would feel comfortable asking questions of more experienced auditors. But it takes courage to ask questions over a chat. Her team now has virtual audit rooms where associates can query more senior auditors. Her team also has virtual lunch meetings, so that relationships and comradery can be built among team members. There has been a lot of turnover in public accounting over the past two years, so senior team members must be intentional in taking steps to retain employees and to recruit new ones.

PCAOB During COVID-19: A Taxing Time

In its March 2020 announcement, the PCAOB stated that its “enforcement and investigative efforts are continuing to the maximum extent possible” (“PCAOB update on operations in light of Covid-19,” March 18, 2020, That year was slow for reports and possibly inspections too. In 2020, only 46 reports were published for all firms, which is a large drop from the 104 reports published in 2019 and 153 reports published in 2018. The number of reports released by the PCAOB in 2021 increased to 159. The majority of 2021 reports were for 2019 inspections (“Firm Inspection Reports,” as of Jan. 1, 2022,, with only six for 2020. It is not known how many 2020 inspections will be reported in 2022 and beyond. Over the previous 10 years, the PCAOB averaged 231 inspections per year and 243 published reports. In years prior to 2019, the PCAOB published reports for current year inspections, with the remaining reports being mostly for the preceding year (Exhibit 5). It is not difficult to imagine that working remotely because of COVID-19 hampered the number of inspections in 2020.

Exhibit 5

PCAOB Inspection Years by Report Years

Even before the pandemic, the PCAOB had a few hectic years. The board has been dealing with slow labor growth and with budgeted growth increasing at a negligible 1% from 2019 through 2021. The 2022 budget funds 891 positions, which is a 2.7% increase from the previous year’s budget ( As of January 1, 2022, the PCAOB was advertising 23 open inspection positions across the United States ( It is possible that COVID-19 combined with labor shortages exacerbated a slowdown in reporting, but it could also be for a combination of other reasons.

For example, several opinion pieces have cited the influence of William Duhnke as the cause of the diminishing number of PCAOB inspections and subsequent reports. Duhnke became chairperson of the PCAOB in early 2018 (“PCAOB Chairman Duhnke and Board Member Hamm Sworn in Today,” Jan. 2, 2018, during the Trump Administration. In April 2021, an opinion article in Forbes suggested that Duhnke and his fellow board members appointed during the Trump administration should be replaced (Robert G. Eccles, “Resurrecting the PCAOB: Undoing one more piece of damage from the Trump administration,” Forbes, April 25, 2021, Just over a month later, Duhnke was fired (“SEC announces removal of William D. Duhnke III from Public Company Accounting Oversight Board; Duane M. DesParte to serve as acting chair,” June 4, 2021, His replacement, Erica Williams, was named chairperson in November 2021 (“SEC Appoints New Chairperson and Board Members to the Public Accounting Oversight Board,” Nov. 8, 2021, Bloomberg Businessweek noted that “enforcement cases fell by about half” (Robert Schmidt and Benjamin Bain, “Chairman’s firing is latest jolt at troubled financial watchdog,” Bloomberg Businessweek. June 4, 2021, under Duhnke’s watch, which is consistent with our findings. One will have to wait to see if enforcement increases substantially under Chairperson Williams.

It is also worth noting that the 2020 PCAOB annual report noted a newly created report format, which was rolled out for the six largest accounting firms in June 2020, “marked one of the most significant changes in PCAOB inspection reports in 15 years” (“2020 Annual Report,” April 27, 2021,, p.8). The new format offers many benefits, including more visuals and breakdowns of previous inspection findings. It helps users more easily see where firms are improving and where they are still falling short. For larger firms, specifically the 11 discussed above, industry data is provided. This data allows one to see if there are deficiency trends within industries. These reports were used to compile the industry information discussed above. In the authors’ opinion, it would be useful if the PCAOB provided such industry detail for all firms.

New Challenges

COVID-19 created a new world in the conduct of audits of public businesses. Auditors accepted the challenge of remote work and continued to produce high-quality audits, as evidenced by the downward trend in deficiencies reported by the PCAOB. At least some businesses prefer the new virtual audits, deriving benefit from talking with their auditors more frequently. With more candid discussions about topics like going concern, more trust may have developed between auditors and clients during this tumultuous time.

The PCAOB has a new chairperson who will bring her own changes to the board. A continued focus on the industries most affected by COVID-19 is expected. The promise to perform a higher percentage of random audits for the largest firms will likely continue beyond 2021 (“Spotlight: Staff Outlook for 2021 Inspections,” April 2021, It is important that the PCAOB be funded to have the resources for high-quality oversight. Strong oversight is important for the reputation of our profession.

Hila Fogel-Yaari, PhD, is an assistant professor of accounting in the college of business, University of Texas at Arlington.
Kelly Gebhart, MST, is a PhD student at the University of Texas at Arlington.