Audit regulators have handed out another blistering Big 4 inspection report, this time to Deloitte & Touche, calling out double the number of audit problems from the prior year.
The Public Company Accounting Oversight Board published its 2010 inspection report for Deloitte, finding fault with 45 percent, or 26 of the 58 audits reviewed. In the year before, the board pointed out problems with 22 percent, or 16 of 73 audits that were scrutinized. The board recently issued similar findings for PwC and KPMG in those firms' 2010 inspection reports. The audit problem rate jumped from 12 percent to 39 percent for PwC, and from 13 percent to 23 percent for KPMG it the same time frame.
In Deloitte's case, the PCAOB said it found failures to identify or properly address financial misstatements, including failures to comply with disclosure requirements. It also found failures to perform necessary audit procedures, including one instance that led to a change in the public company client's accounting. Some of the problems were so significant, the PCAOB said, that it appeared the firm did not obtain the evidence it needed to support the opinion it issued on the financial statements or the effectiveness of internal control over financial reporting.
That unflattering report follows a separate report in October where the PCAOB pointed out problems with Deloitte's audit quality control dating back to 2007. The board normally keeps such criticisms private and gives firms a year to resolve them before making those concerns public.
In October, however, the board updated a 2008 inspection report with concerns that the overall design of Deloitte's audit methodology and policies is problematic. The firm doesn't show enough skepticism, too easily accepting management's word on accounting matters and areas of judgment, the board said. The report also raised concerns about audit supervision, internal enforcement of existing policies and procedures, the quality of the firm's internal training programs, and the internal consultation process on tough audit issues.
In a letter accompanying the recent inspection report, Deloitte says it has evaluated the issues raised by the inspection team and taken appropriate actions. “We are committed to continuing to work with the PCAOB to further strengthen trust in the integrity of the independent audit,” the firm wrote. Firm spokesman Jonathan Gandal said Deloitte has been making investments in strengthening and improving the practice.