PCAOB Releases Tips for Improving Audit Engagement Screening

The PCAOB isn’t just tightening the screws on compliance; it’s flipping through the script on how audit firms decide who gets a seat at the table. In its July 2025 Audit Focus: Engagement Acceptance, the Board makes it clear: not every client is worth the risk. Especially when red flags are dancing around, as if it were tax season at Enron, this new focus is more than administrative hygiene; it’s about stopping audit failures before the first work paper is drafted. Think about it: most audit implosions don’t happen because someone missed a number. They happen because the engagement shouldn’t have happened in the first place.

Scorecards, Vetting & Templates FTW

The PCAOB isn’t just tossing out theory; they’re highlighting real-world best practices that are already helping savvy firms avoid audit regret. Highlights include:

• Partner Capacity Scorecards: Instead of relying on subjective assessments of bandwidth, some firms use a points-based system that calculates whether audit partners can take on additional work based on their current workload and the type of audit.
• Pre-Bid Vetting Teams: Before pitching a new engagement, firms assemble internal assessment units to determine whether the client aligns with the firm’s risk tolerance and industry expertise—no gut decisions-just structured due diligence.
• Decision Templates: Think of them as a decision framework. Templates provide a structured approach to weigh pros and cons before saying “yes” to a potential client. These help avoid emotional decisions or rushing into high-risk audits.

These aren’t bells and whistles; they’re insured against another inspection horror story. And honestly? Long overdue.

Independence Still a Mess

Let’s not sugarcoat it; auditor independence violations are getting worse. According to the PCAOB’s September 2024 staff update, breaches jumped from 7% in 2021 to 14% in 2023. And we’re not talking slip-ups; we’re talking outright failures to flag financial ties, unapproved tax services, and broken internal controls. In response, the PCAOB laid out five survival tips for staying clean:

• Utilize technology tools that automatically flag problematic holdings.
• Increase the frequency of personal independence checks.
• Create stronger documentation trails.
• Establish tough penalties for non-compliance.
• Standardize global engagement templates to avoid risky clauses.

We broke this down in our earlier piece, PCAOB Sets the Stage for 2025 Audits, and it’s worth another read if you’re still catching up.

The Audit Failures Still Happening

March 2025 was a wake-up call. The PCAOB imposed severe penalties on multiple audit firms for failing to conduct risk assessments, neglecting key procedures, and improperly documenting their work. Whether it was solo players like James Pai or CAM-faking CPAs like Jaslyn Sellers, the pattern was clear: too many firms still treat engagement acceptance like a paperwork drill instead of a quality filter. As PCAOB Chair Erica Williams put it: “Performing appropriate risk assessments and obtaining sufficient evidence are fundamental to an audit.” If you’re still thinking audit quality begins with fieldwork, think again. It starts way earlier, with who you say “yes” to.

Audit Quality Gets a Boost

Now, some good news: audit quality is showing signs of a comeback. The PCAOB’s 2024 inspection results showed that Part I deficiency rates fell from 46% to 39%, with Big Four firms trimming theirs to just 20%. Deloitte led the pack, slashing its rate to 14%. That’s not just optics; it’s real progress in high-risk areas, such as revenue recognition and internal controls. But trouble still brews. Broker-dealer audits? Still a mess. Seventy-six percent of 2024 audits inspected had at least one deficiency, up from 70% the previous year. Revenue missteps, sloppy journal entry testing, and non-GAAP disclosures are still clogging the pipes. And let’s not forget: QC 1000 kicks in this December. Firms dragging their feet on system-wide quality control improvements are in for a rude awakening.

Journal Entries Under the Microscope

Journal entries may look routine, but they’re often ground zero for fraud. The PCAOB warns that without proper testing, these entries, especially at the end of the period, can conceal misstatements and unauthorized adjustments. Common pitfalls include poor understanding of reporting processes, no population testing, ignoring red-flag entries, and failing to justify fraud criteria. According to AS 2401, treating journal entries as a key audit safeguard is non-negotiable. With broker-dealer audits under scrutiny and fraud risk on the rise, firms that overlook journal entry testing risk serious consequences. Bottom line: if you’re not digging into the details, you’re setting up for failure, possibly even PCAOB enforcement.

What Professionals Need to Own

Let’s bring it home. Whether you’re reviewing engagement letters or conducting walkthroughs, this isn’t just about firm-wide policy. The PCAOB expects judgment. Rigor. Ownership. Here’s your checklist:

• Are we saying “yes” to clients we shouldn’t?
• Are templates being used effectively, or are they copied and pasted?
• Does our risk tolerance reflect reality, or wishful thinking?
• Are we checking independence with precision, or praying we don’t get caught?

If you’re hoping for fewer late-night email scrambles and better inspection outcomes, it starts with getting real before the audit begins.

Who in Your Firm Owns the “No”?

Here’s the real deal: saying “yes” to the wrong client can trigger a domino effect of missed risks, nightmares, and reputation damage. And the PCAOB is done giving second chances. Whether it’s sloppy journal entries, unchecked independence conflicts, or a partner stretched thinner than tax season coffee, problems often trace back to that first go/no-go decision. So, ask yourself: Who’s guarding the gate at your firm? Do they have the tools, the judgment, and most importantly, the backing to say “no” when the stakes are high? Because in today’s audit scenario, the strongest move isn’t doing more. It’s knowing when not to. Subscribe to MYCPE ONE Insights for sharp analysis without the fluff.