The Public Company Accounting Standards Board has published the last of its 2014 inspection reports on the eight largest audit firms, giving Grant Thornton improved marks from the year before and reflecting slight improvement across all major firms.
Grant Thornton’s 2014 report, just released by the PCAOB as it also rolls out new reports for 2015, shows inspectors dug into 34 audit files and found deficiencies in 11 of them for a rate of 32 percent. That’s a significant reduction in the number of deficient audits for the firm, which racked up deficiency rates of 55 percent in 2013 and 65 percent in 2012, among the highest rates across all major firms for those two years. The firm said it was happy that inspection results are trending in the right direction. “We look forward to making continued progress,” the statement said.
Across the eight largest firms that are inspected annually -- that means the Big 4, plus Grant Thornton, BDO USA, Crowe Horwath and RSM (formerly McGladrey) -- the PCAOB inspected a total of 305 audits and found fault with 116 of them for an aggregate rate of 38 percent. That’s also a modest improvement over the total rate across those firms in 2013, when the board called out problems in 43 percent of all audits selected for inspection. The figures in 2012 were about the same, with 122 of 209 audits criticized for a rate of 42 percent.
The 2014 report on Grant Thornton followed the theme for other leading firms of recent years, where inspectors flagged problems with the audit of internal control over financial reporting more than any other audit problem. Seven of the firm’s 11 audits labeled as deficient were called out for problems with the internal control work.
Six of those seven demonstrated issues around sufficiently testing the design or operating effectiveness of the controls that auditors selected for testing. In five cases, inspectors said auditors failed to identify any controls that addressed risks related to particular accounts or assertions in the financial statements. All in all, inspectors identified what they considered to be a total of 16 separate lapses in complying with auditing standards around internal control and six mistakes in evaluating audit results.
In its response to the inspection attached to the report, dated May 2016, Grant Thornton leadership says the firm has considered each of the findings and taken appropriate steps to address them. “The firm continues to invest resources on improving audit quality and has implemented substantive actions to address the areas of deficiencies cited in the report,” wrote Michael McGuire, CEO of the firm, and Jeff Burgess, national managing partner of audit services.