The Public Company Accounting Oversight Board (PCAOB) continues to observe serious audit deficiencies in public companies audits as a result of its periodical inspections.

Since 2004 the US watchdog has been conducting annual inspections of public accounting firms that audit more than 100 issuers; at least every three years for firms that issue less than 100 audit reports.

PCAOB’s 2011 inspection reports continued to register high levels of serious inspections findings.

"The findings represent deficiencies that are of such significance that it appeared that many firms had failed to obtain sufficient, appropriate audit evidence to support their audit opinions on the financial statements," PCAOB board member Jeanette Franzel said in a recent speech.

Addressing an audience of accounting students at the University of Tennessee, Franzel pointed to professional scepticism, supervision and the management’s tone at the top as areas of concern where audit firms are falling short of rigour.

Franzel added common specific areas where the PCAOB found audit deficiencies in the past year include revenue recognition, fair value of financial instruments, related party transactions and fraud risk among others.

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The US watchdog is in the midst of its 2012 inspection season and has completed a substantial number of the 2012 inspections.
During 2012, Franzel commented, the PCAOB is inspecting nine firms that audited more than 100 issuers in 2011. Besides the Big Four those firms are BDO US, Crowe Horwath, Grant Thornton, MaloneBailey, and McGladrey.

"We also expect to complete approximately 170 domestic firm triennial inspections and about 80 non-US firm triennial inspections," Franzel added.