The Public Company Accounting Oversight Board found fault with 29 percent of the audits inspected at PwC in 2014, a slight improvement for the firm over the 32 percent reported in 2013.
The PCAOB picked apart 58 audit files in its 2014 inspection of PwC’s audits of 2013 financial statements, finding problems in 17 audits serious enough to suggest the firm didn’t adequately support its audit opinion. In one case, the PCAOB says, the firm’s work following the inspection finding led to an issuer restating its financial statements. In four other audits, PwC revised its opinion on the company’s internal control over financial reporting to express an adverse opinion, according to the PCAOB’s inspection report.
The PCAOB says out of 17 of the flagged audits, nine contained problems with both the financial statement audit and the audit of internal control over financial reporting. Among the 11 total audits where inspectors found problems with the internal control audit, inspectors flagged what they deemed to be 26 separate errors.
Inspectors called out 22 separate violations of auditing standards around auditing fair value measurements and disclosures. The most common problem inspectors found was the failure to sufficiently test significant assumptions or data that the issuer used in developing an estimate, a complaint the PCAOB raised in a dozen of the 17 audits. The PCAOB is working to develop new standards in this particular area. Inspectors also flagged 10 instances where the firm failed to sufficiently test the design and/or operating effectiveness of controls selected for testing.
While PwC’s overall deficiency rate improved from 2013 to 2014, it wasn’t good enough to match Deloitte’s 21 percent deficiency rate, but it was better than EY’s 36 percent rate. KPMG’s report has not yet been published for 2014, nor have reports on any of the next tier of firms, such as Grant Thornton, Crowe Horwath, BDO USA, or McGladrey. Last year, those large firms combined posted an average deficiency rate of 43 percent, so the average for this year of those reports so far published, at 29 percent, represents a more significant improvement overall.
In a statement attached to the inspection report, PwC leaders Bob Moritz and Vin Colman say they have evaluated the inspector’s observations and taken appropriate actions under auditing standards and the firm’s own policies. “We continue to support the PCAOB in its mission and are committed to furthering the public interest through the preparation of informative, accurate, and independent audit reports,” they wrote.
After the report was issued, the firm said in a statement it values the feedback that comes through the inspection process. “While we are pleased with our continued improvement, the top priority of our assurance practice is to further enhance audit quality through our investments in innovation and other quality initiatives,” the firm said.