The Public Company Accounting Oversight Board has published its latest inspection findings for two more major firms—BDO USA and Crowe Horwath—giving the firms much different marks for their audit work in 2013.

At BDO USA, inspectors dug into 23 audit files and found deficiencies in 15 of those, or 65 percent. That’s an increase compared with inspectors’ finding of 11 problem audits out of 20 scrutinized, or 55 percent, in the firm’s 2012 inspection. At Crowe Horwath, on the other hand, inspectors checked only 13 audits and found problems in five of them, or 38 percent. And for that firm, that represents an improvement over the 2012 inspection report, which reflected problems in six of the 12 audits inspected, or 50 percent.

BDO’s 65-percent deficiency rate is the highest among major firms in the 2013 inspection cycle. Among the Big 4, EY took the most heat with a 49-percent failure rate, followed by KPMG at 46 percent, PwC at 32 percent, and Deloitte at 28 percent. McGladrey’s 2013 report showed a 31-percent failure rate, leaving only Grant Thornton’s 2013 report yet to be published among the major firms.

Consistent with the findings across several major firms, BDO’s inspectors pointed out problems with the audit of internal control over financial reporting more frequently than any other deficiency. Inspectors said 14 of the 15 audits with problems contained errors in the application of Auditing Standard No. 5, which governs the internal control audit. Inspectors also called out six problems with the audit of fair value measurements and six problems with auditors’ evaluation of audit results. At Crowe Horwath, however, inspectors noted only two cases where auditors failed to comply with AS 5. 

In a letter attached to its inspection report, BDO said the firm has evaluated each inspection finding and has taken appropriate actions under auditing standards and firm policies. “We remain committed to improving our audit performance and our underlying quality control systems,” the firm wrote. “We look forward to continuing to work with the PCAOB on the most effective means of achieving this objective.” The firm had no further comment beyond the letter.

Crowe’s letter responding to its inspection report also indicated the firm considered the findings and took actions to address each matter raised by inspectors in accordance with auditing standards and the firm’s policies. The letter even offered some unusual praise for inspectors. “We also wish to acknowledge the professionalism of the PCAOB’s inspectors and staff in their interactions with our personnel,” the letter says.

Rick Ueltschy, managing partner at Crowe Horwath, said in a statement the firm is pleased to have seen improvement in its inspection results from three prior years. “We continue to use this constructive criticism to make improvements in our audit processes, procedures, and training," he said. "We welcome the input from the PCAOB.”

The PCAOB issued an alert to auditors in late 2013 based on what it observed to be persistent problems with the audit of internal control, calling on auditors to make improvements. The latest round of reports on all the firms reflects inspections performed before that alert was issued, or the inspection findings that immediately preceded the issuance of the alert. According to the PCAOB’s typical reporting time lines for inspection reports, inspections performed in 2014 following the issuance of the alert will be published over the course of 2015.

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