The Public Company Accounting Oversight Board issued its 2017 inspection report on PwC showing an uptick in the percentage of audits with deficiencies.
Inspectors selected 55 audits for inspection at PwC and found problems in 13 of them, or 24 percent. That’s an increase from the 20 percent rate reported in PwC’s 2016 report. The PCAOB notes one of the deficiencies it found prompted an issuer to make adjustments to its financial statements. The report also says certain deficiencies relate to internal control testing where the firm “revised its opinions on the effectiveness of the issuer’s ICFR to express an adverse opinion” after the inspection.
Although the PCAOB historically has stated how many revised opinions followed inspection, the 2017 report is not as explicit. In 2016, PwC’s inspection prompted one restatement and two revised internal control opinions. In 2015, inspection fallout led to three restatements and six altered internal control opinions.
In the 2017 report, the PCAOB says 49 of the 55 inspected engagements involved a financial statement audit and the audit of internal control. With 11 of the 13 deficient audits containing internal control audit deficiencies, according to the report, that means 22 percent of PwC’s internal control engagements inspected contained errors. That’s also an increase over 18 percent the prior year.
Across the six largest firms whose 2017 reports have been published, PwC fared better than KPMG’s 50 percent deficiency rate, but fell behind Deloitte’s 20 percent and Grant Thornton’s 18 percent. Results are still outstanding for EY and BDO USA.
In PwC’s latest report, the PCAOB says auditors struggled in seven audits with testing controls that addressed the risks related to a particular account or assertion and in six audits with sufficiently testing the design and/or operating effectiveness of controls selected for testing. In six cases, auditors also failed to adequately evaluate significant assumptions or data used to develop an estimate.
In its written response attached to the inspection report, PwC says it took appropriate steps after the inspection to address the concerns raised by inspectors. It also provided a link to its 2018 audit quality report to highlight the “tangible steps we are taking to maintain and improve audit quality.”
Separate from the report, the firm said in a statement: “We continue to appreciate the PCAOB’s insights and the value provided by the inspection process. Bringing value to the capital markets by consistently performing high-quality audits remains our top priority, including addressing the matters raised in the report.”