The US Public Company Accounting Oversight Board (PCAOB) identified significant deficiencies in two of the three audits it reviewed at Ernst & Young Auditores Independentes S/S Brazil (E&Y Brazil) in late 2006.
The PCAOB inspection team said it appeared E&Y Brazil did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements
The specific deficiencies were:
– A failure to perform sufficient procedures to test contracts purchased to hedge an operating expense and certain cash flows; and.
– A failure to perform sufficient procedures to evaluate the issuer’s accounting for cross-currency and interest rate swap agreements on debt issuances.
In a letter responding to the PCAOB report, E&Y Brazil said it agreed to perform additional procedures and improve aspects of its audit documentation in response to one of the matters identified by the PCAOB inspections.
“We note, however, that the other matter described in the report was observed during an internal inspection that was performed just prior to the PCAOB’s inspection and the additional procedures and audit documentation were completed in response to the internal inspection,” E&Y Brazil wrote.
In neither instance did the PCAOB findings change E&Y’s original audit conclusions or affect the audit opinion on the financial statements.
The E&Y Brazil review formed part of the PCAOB’s regular oversight process. It is not unusual for the regulator to identify audit deficiencies.