In preparation for the 2006 inspections which are set to begin this month, the Public Company Accounting Oversight Board (PCAOB or the Board) issued a statement regarding its approach to inspections of firms’ audits of internal control over financial reporting. The PCAOB's press release regarding its statement on inspections can be accessed at the respective link. The 2006 inspections will include annual inspections of the largest eight U.S. firms and a Canadian firm, plus the continuation of the three-year cycle of all other U.S. and international firms.

The following is an excerpt from the PCAOB’s statement:

In 2006, the Board's inspection process will focus on how efficiently the firms performed audits pursuant to Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (AS 2), in light of the 2005 guidance. Specifically, inspectors will evaluate:

1. the degree of integration between the audit of internal control over financial reporting and the audit of financial statements;
2. the use of a top-down approach to the audit;
3. the proper assessment of and response to identified risks; and
4. using the work of others.

Through their evaluations of these areas, inspectors will assess the efficiency of the firms' audits of internal control over financial reporting.