The latest audit inspection results for EY show the firm failed in 29 percent of the audits inspected in 2015 to perform a clean audit, but that’s an improvement over results from the year before.
The Public Company Accounting Oversight Board’s newest report for EY says inspectors selected 55 audits to inspect and found problems in 16 of them for a bust rate of 29 percent. That’s better than the 20 busted audits out of 56 inspected the year before, where the rate was 36 percent.
In a statement, EY said it is committed to audit quality. “We are proud of our progress, and we value and fully support the PCAOB’s inspection process as it helps us to improve audit quality,” the firm said.
The PCAOB says 14 of the 16 deficient audits exhibited problems with the audit of internal control over financial reporting, which is consistent with the findings in many inspection reports on the major firms over the past few years. All in all, the PCAOB tallied up 41 specific instances where auditors failed to comply with auditing standards on the internal control audit.
In the context of internal control audit failures, the PCAOB calls out some specific problems that occurred in numerous audits: a failure to sufficient test the design or operating effectiveness of controls selected for testing, failure to sufficient test significant assumptions or data used to develop estimates, and failure to identify and test controls that address risks related to a particular account or assertion.
After mistakes in the internal control audit, inspectors also called out problems in areas such as the auditor’s response to the risks of material misstatement, auditing fair value measurements and disclosures, and substantive analytical procedures. In terms of accounting issues, inspectors found the problems with audit procedures around revenue recognition most frequently, including deferred revenue and allowances.
The EY report for 2015 is the third of the Big 4 reports to be issued for that inspection cycle. Deloitte earlier learned that it failed in 24 percent of its audits inspected, up from the prior year’s rate of 21 percent.
PwC showed an improvement in its most recent report, with a busted audit rate of 22 percent compared with 29 percent the prior year. In PwC’s case, however, inspection findings for more than half of its failed audits led to withdrawn opinions on internal control and even a few restatements. Results for KPMG’s 2015 audit have not yet been published.