Audit regulators found fault with five of 14 audits inspected at Crowe Horwath in 2014, a slight improvement for the firm over its 2013 results.
The Public Company Accounting Oversight Board published its 2014 inspection report on Crowe Horwath showing an audit deficiency rate of 36 percent compared with 38 percent in 2013 and 50 percent in 2012. “We are pleased with the trend of continuous improvement in our inspection results,” said Mark Baer, managing partner in charge of audit services at Crowe, in a statement. “We will continue to use this constructive criticism to enhance our audit processes, procedures, and training. We welcome the input from the PCAOB.” The PCAOB cautions against using inspection reports as score cards because it follows a risk-based approach to inspections.
The latest report from the PCAOB is the fifth report published for the eight major firms that are inspected annually by the board. So far, Crowe is on par with EY, which also posted a 36-percent deficiency rate, but ahead of McGladrey at 47 percent and well behind Deloitte at 21 percent and PwC at 29 percent. Reports are still outstanding for KPMG, BDO USA, and Grant Thornton.
In Crowe’s latest report, inspectors take exception with the audit of internal controls over financial reporting in only two of the five deficient audits. All five deficient audits exhibited problems with the financial statement audit, according to the report. In four of the five audits, inspectors called out problems in complying with standards on auditing accounting estimates, the most commonly noted error in Crowe’s report. Inspectors also noted problems with responses to risks of material misstatement, identifying and assessing risks of misstatement, using the work of a specialist, and audit sampling.
Some of those issues are consistent with problems PCAOB has noted across the profession, according to a recent inspections brief issued by the board. In that report, the PCAOB says it is focusing on three big areas across all firms -- internal control audits, audit response to risk of material misstatement, and the audit of accounting estimates, including fair value measurements.
The PCAOB notes 11 of the 14 audits selected for inspection at Crowe came from entities in financial services. Four of the five deficient audits describe numerous instances where auditors failed to properly audit allowances for loan losses. About half of the engagements inspected were for entities that generated revenues of less than $100 million.
In a letter attached to the report, the audit firms says it evaluated all the issues raised by inspectors and took action to address each one in accordance with auditing standards and firm policies. “These actions include additional procedures when appropriate, and providing additional documentation in our files to more completely describe procedures, evidential matter, and our conclusions,” the firm wrote.