The amount of audit failures detected in the work of US firms BDO, Ernst & Young (E&Y) and Grant Thornton have increased according to the latest inspection review by the US Public Company Accounting Oversight Board (PCAOB).

The deficiencies observed by the PCAOB for 2011 audits ranged from failing to obtain sufficient supportive evidence of audit opinions to failing to have in place effective internal control financial reporting (ICFR).

The PCAOB’s inspection of BDO found failures in 9 of the 23 audits reviewed, representing 39% of those chosen for the inspection, up from 26 % from 2010 when the watchdog observed 8 flawed audits out of 31 reviewed.

E&Y experienced a sharper increase of 15% with the PCAOB finding deficiencies in 20 out of 55 audits examined, representing 40% of failure in the audit work inspected for 2011. In 2010 PCAOB had identified deficiencies in 13 out of the 62 audits reviewed, a 21% rate of failure in the inspection.

For Grant Thornton, the watchdog observed failures in 14 of the 35 audits examined. The mid-tier firm increased 3% its failure rate compared to 2010 when the PCAOB detected 15 out of 41 audits with deficiencies.

Although Deloitte improved in terms of audit failures (4% less than in the 2010 inspection), the PCAOB found the largest failure rate at the firm, 42%, with 22 flawed audits out of the 52 reviewed in 2011.

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By GlobalData

The watchdog stressed that the results of the inspections should not be generalised as to draw "broader conclusions about the frequency of deficiencies" in relation to each firm’s practice.

The inspections, legislated by the Sarbanes-Oxley Act of 2002, include reviews of certain aspects of selected audit work performed by the firm.

"It is not the purpose of an inspection, however, to review all of a firm’s audit work or to identify every respect in which reviewed work is deficient," the PCAOB states in its reports that inspections.

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Public Company Accounting Oversight Board