The PCAOB focuses its inspections on those areas of an audit likely to pose the most significant challenges for an auditor or to pose the most significant risk to investors of misstated financial statements. These include areas that are fundamental to any audit, such as testing of revenue, as well as areas that pose increasingly challenging issues in current market conditions, such as testing of fair value measurements. Click to download Report on the PCAOB's 2004, 2005, 2006, and 2007 Inspections of Domestic Annually Inspected Firms (PDF 107k). Here is an overview of the findings:

• Inspectors continue to find deficiencies in important audit areas, both established and emerging. These areas include critical and high-risk parts of audits, such as revenue, fair value, management's estimates, and the determination of materiality and audit scope. These deficiencies occurred in audits of issuers of all sizes, including in some of the larger audits they reviewed. In some cases, the deficiencies appeared to have been caused, at least in part, by the failure to apply an appropriate level of professional skepticism when conducting audit procedures and evaluating audit results. In addition, even in areas where inspectors have observed general improvement, deficiencies continue to arise. The inspectors will continue to focus on the significant areas where they have encountered deficiencies.
• In certain well-established audit areas, such as the confirmation of accounts receivable and the auditing of income tax accounts, the incidence of deficiencies encountered has declined. In certain other areas, such as the performance of analytical procedures, the nature of the deficiencies identified by inspectors has generally narrowed during the four-year period, with fewer of them relating to the overall failure to apply the governing standard and more relating to only one or a few aspects of the standard. In addition, inspectors have, in recent years, reviewed some audits of issuers whose audits had been reviewed in prior years in order to evaluate whether performance in the areas commented upon in prior years had improved. In the majority of these specific audits, inspectors observed improvement in the auditing of those areas.
• In response to the identification, during the inspection process, of quality control deficiencies, firms have changed their audit methodologies, processes, or related quality control systems.