The Public Company Accounting Oversight Board gave a failing grade to Grant Thornton on 65 percent of audits inspected in 2012, the highest failure rate ever registered in a single inspection report by a major firm.
The PCAOB found fault with 22 of the 34 Grant Thornton audits scrutinized, a notable jump from the 15 of 35 audits, or 43 percent, with problems in 2011. In the four years that the PCAOB has provided data in its reports on how many audits it inspects, only Crowe Horwath has registered a failure rate above 60 percent, hitting 62 percent in 2011 and 2010.
As the PCAOB has hammered firms to get tougher on internal control over financial reporting, inspectors found internal control problems in 19 of Grant Thornton's 22 problem audits in 2012, or 86 percent. In a letter attached to the inspection report, Grant Thornton acknowledged the disturbing figures. “The volume of findings in this report is concerning and of great importance to our dedicated professionals,” wrote CEO Stephen Chipman along with Trent Gazzaway, national managing partner of audit services.
Chipman and Gazzaway also note, however, that the report addresses 2011 financial statements that were audited in 2012 and inspected in 2013. The firm revised its audit methodology and training around internal control in the summer of 2012 based on concerns raised by the PCAOB about the quality of internal control auditing across the profession. “Those changes were in effect during our audits of 2012 financial statements (conducted in 2013), and we believe have been effective at improving audit quality in this important area,” they wrote.
Beyond internal control, the PCAOB also called out 10 audits where the firm failed to comply with standards on assessing the risks of material misstatements, and nine cases where the firm had difficulty with auditing fair value measurements. Seven audits also contained problems with auditing accounting estimates.
Over the latter part of 2013, the PCOAB published reports for all four Big 4 firms, with their failure rates ranging from a low of 25 percent for Deloitte to a high of 48 percent for EY. Among major firms, 2012 reports are still outstanding for McGladrey, BDO USA, and Crowe Horwath.