For whatever reason, BDO was excluded in the last-minute lump of coal the PCAOB delivered to Deloitte, Ernst & Young, and Grant Thornton right before Christmas, but that doesn't mean their inspection report wasn't in the same class of quality.
The Board inspected audits at 16 of BDO's 35 offices, inspecting 23 audits with 9 of those having deficiencies; that's comes to a 39% rate of audits that weren't up to snuff.
The deficient audits have the run-of-the-mill stuff we're all used to — not enough control testing for material accounts; not enough substantive testing on various types of material accounts such as revenue, A/R, inventory, COGS, etc.; a couple instances of dodgy work around the percentage-of-completion method; an instance of insufficient work around VIEs. You know, the ushe.
But there is one derpity moment in BDO's inspection report that is worth singling out and it comes from Issuer H:
In this audit, the Firm failed to sufficiently test the customer receivables and payables. The Firm sent requests for positive confirmation, as of an interim date, to a sample of customers with outstanding balances. The Firm did not receive responses to approximately 60 percent of those requests. The Firm failed to perform sufficient alternative procedures to determine whether the amounts related to the non-responding customers were correct, as its procedures were limited to determining that the customer's signature was on file and that the issuer had approved the establishment of the account.
1) Is this lazy? It depends, I guess. If there were 1,000 confirmations sent, would you want run down the 600 or so that either went missing or were received by people who took one look at the form, shrugged, and went back to their Facebook page? If we're talking about only following up on 50 or 60 confirmations, then yeah, that's a little lazy.
2) Is this sloppy? For sure.
But really, BDO is no different than any of the other firms. Let's look at the problem rates for 2011:
They barely managed to break the 40% barrier and that was good enough for 3rd place.
My friends, this is where audit quality stands today amongst the top firms in the world. Yeesh.