The Public Company Accounting Oversight Board (PCAOB) has
released a report reviewing the first four years of inspections of
the nation’s eight largest audit firms.

The report summarises deficiencies identified in audits by BDO
Seidman, Crowe Horwath, Deloitte, Ernst & Young, Grant
Thornton, KPMG, McGladrey & Pullen and PricewaterhouseCoopers.
It does not identify any shortcomings specific to the individual

Across the board

Deficiencies were found in both established and emerging audit
areas. Areas where they occurred included revenue, fair value,
management’s estimates, and the determination of materiality and
audit scope.

The shortcomings occurred across the board, including in some of
the larger audits reviewed.

The board noted that in some cases the deficiencies appeared to
have been caused by a failure to apply an appropriate level of
professional scepticism when conducting audit procedures and
evaluating audit results.

Over the four years of inspections, inspectors found improvement
in most areas where deficiencies had been identified.

Deficiencies declined in some well-established audit areas,
including confirmation of accounts receivable and the audit of
income tax accounts.

Where quality control deficiencies had been identified, firms
subsequently changed audit methodologies, processes or related
quality control systems.

The report categorises deficiencies into three areas: departures
from GAAP; auditing deficiencies, referring to where the firms
failed to conduct audits in accordance with PCAOB standards; and
deficiencies in quality control functional areas.

The most common GAAP departures related to income taxes,
derivatives, revenues and cash flow presentations.

The most common audit deficiencies related to revenues,
accounting estimates, auditing fair value measurement, analytical
procedures, income taxes, internal control, audit sampling, use of
specialists, and materiality, audit scope and audit

Deficiencies in quality control functional areas usually related
to partner evaluation and certain other aspects of firm structure,
organisation and management, internal inspections, foreign
affiliates and independence.