The Public Company Accounting Oversight Board says Crowe Horwath failed to properly audit half of the audits that inspectors studied in their 2012 inspections.
The board's recently published 2012 inspection report on Crowe says inspectors selected 12 audits for the annual review and found deficiencies that are significant enough to call failures in six of the 12 audits. That's an improvement over the firm's earlier failure rates -- 62 percent in both 2011 and 2010.
It also improves Crowe's standing among the major firms that are inspected annually by the PCAOB. Since 2009, Crowe has had the highest failure rate of the Big 4 and second-tier firms, which audit the vast majority of the U.S. public company markets. For the 2012 inspection cycle, Grant Thornton and BDO USA turned in higher failure rates, at 65 percent and 55 percent respectively. McGladrey's 2012 report is the only report for the major firms that is not yet published.
The PCAOB said Crowe failed in four of the six deficient audits to adequately check internal controls over financial reporting, a common theme throughout inspection reports among the major firms. In two cases, Crowe failed to properly respond to risks of material misstatement, inspectors said, while the firm recorded one failure each in auditing estimates, sampling, and identifying and assessing risks of material misstatement.
In a letter attached to the inspection findings, Crowe offered no objection to the findings and says it has taken appropriate follow-up measures related to each of the criticisms. "While we are pleased that we improved from the previous two years, we are still not satisfied with the results and are using this constructive criticism to make improvements in processes and procedures," said Rick Ueltschy, managing partner of the firm in a prepared statement. "We continue to revise and expand our audit procedures and training, and are always taking steps to improve our audit quality. We welcome the input from the PCAOB."