The PCAOB studied 13 audits at McGladrey and found fault with four in its 2013 inspection of the firm, the first second-tier national firm to see its report published. With a deficiency rate of 31 percent, that’s an improvement for the firm over prior year rates of 44 percent in 2012 and 50 percent in 2011.
Inspectors reported only one instance in the 13 audits they studied where McGladrey auditors failed to fully adhere to AS5 on internal control, an area the board criticizes heavily in other inspection reports and alerts to auditors. Inspectors noted three instances where auditors had problems responding the risks of material misstatements, and two deficiencies each with audit evidence and auditing accounting estimates.
In its letter attached to the report, McGladrey says it supports the inspection process and believes it helps enhance audit quality. “McGladrey is committed to using the inspection comments and observations to improve our system of quality controls,” the firm wrote. The firm had no further comment beyond that contained in the report.
PCAOB inspections are meant to ferret out the most difficult, problematic areas of the highest-risk audits, and the PCAOB cautions against extrapolating inspection results or applying them broadly to the firm’s overall level of audit quality.
Among major firms, 2013 reports are still pending for BDO USA, Crowe Horwath, and Grant Thornton.