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PCAOB Finds Issues in Majority of BDO Audits Inspected

Tammy Whitehouse | January 17, 2014

The Public Company Accounting Oversight Board found problems with 11 of the 20 audit files it inspected, or 55 percent, at BDO USA in 2012, according to the firm's recently published inspection report, giving BDO the second highest failure rate among major firms whose reports are available so far.

BDO fared better with inspectors in the 2011 cycle, when inspectors found fault with 9 of 23 audits, or 39 percent. The firm's report for 2010 inspections showed a failure rate of 26 percent.

Of the five major firms whose reports for 2012 inspections have already been published, BDO's failure rate of 55 percent falls behind only Grant Thornton's 65-percent rate, but just ahead of EY's 48 percent. Falling in line behind EY is PwC at 39 percent, KPMG at 34 percent, and Deloitte at 25 percent. Inspection reports for 2012 are still outstanding for McGladrey and Crowe Horwath, which turned in the highest rates among major firms in 2011 at 50 percent and 62 percent respectively.

The PCAOB reports shows BDO struggled with many of the same issues that have tripped up all the major firms in recent years. The report says inspectors found five problems with audits of internal control, five problems with auditing accounting estimates, four issues around auditing of fair value, and four concerns over how auditors handled audit evidence.

In a letter attached to the inspection report, BDO says the firm remains committed to improving audit performance and its system of quality control. “We have concluded that none of the matters identified by the PCAOB or the results of procedures subsequently performed impacted our previously issued reports on the financial statements,” the firm wrote.

Audit firms have told companies to expect more rigorous audits based on pressure from the PCAOB, with auditors especially looking for more documentation and more audit evidence around internal control over financial reporting.