Add Grant Thornton to the list of major audit firms getting a downgrade from the Public Company Accounting Oversight Board in its latest inspection report.

The PCAOB published the results of its 2010 inspection of Grant Thornton's audit work, finding fault with 15 of the 41 audits it reviewed, or 37 percent, including one blown audit that led to a restatement. By comparison, Grant Thornton's 2009 inspection report described 5 failed audits outs of 39 inspected, or 13 percent. That puts the firm in line with similar results for all the Big 4 and second-tier firms, except Crowe Horwath, whose 2010 inspection report has not yet been published. Big 4 and second-tier firms have seen audit failure rates of 20 percent to nearly 50 percent in the 2010 inspection cycle, representing big increases for virtually every firm.

For Grant Thornton, PCAOB inspectors studied audits of 2009 financial statements and internal control reports, visiting the firm's national office and 21 of its 51 practice offices. The inspection report details problems with many of the common hot spots in deficient audits – failures to adequately test internal controls, problems with revenue recognition and impairments, and problems with fair value measurements and allowances for loan losses. For many of the audits described in the report, inspectors noted multiple separate audit deficiencies.

In its written comment attached the inspection report, Grant Thornton takes no exception with any of the inspection findings. The firm says it considered each of the findings and took steps to fulfill its duties under auditing standards that address the discovery of audit issues after the audit report is filed.

Trent Gazzaway, national managing partner of audit services for Grant Thornton, says the increase in inspection findings across all of the firms that are inspected annually reflects “the PCAOB's rightly placed intention to hold public company auditors to a higher standard.” He says the inspection finding gives the firm the opportunity to improve its methodologies, tools, and quality controls to meet the complex and evolving audit environment. “We have begun to implement appropriate changes and look forward to working with the PCAOB on advancing our procedures,” he says.