You know, when I sat down to start writing this, I contemplated some clever headline, perhaps something about a veritable smorgasbord of audit screw-ups, but then I was like, you know what, nah. We should recognize that Deloitte has posted its lowest audit deficiency rate ever, which is something worth applauding even if the fuck-up rate is still one out of five audits inspected.
Deloitte is out of the gate for the first big inspection report of the season and racked up an impressive 20% deficiency rate, with 11 of the 55 audits inspected coming up short. Or, as the PCAOB says, “of such significance that it appeared to the inspection team that the firm, at the time it issued its audit report, had not obtained sufficient appropriate audit evidence to support its opinion.” In other words, they done fucked up.
Firms have had years — YEARS — to figure this PCAOB inspection shit out, and it seems like they’re only getting worse, or in the case of KPMG, getting lazy and trying to cheat rather than figuring out how to audit better. So to see at least one firm make some progress in this area gives us hope that it is totally possible to suck less (we’re looking directly at you, BDO). Deloitte has clawed its way to the top of the trash heap from a whopping 45% failure rate in 2010 to 42% in 2011 and 25% in 2012.
The biggest problem for Deloitte, which reared its ugly head on seven different issuers inspected by the PCAOB, was Failure to sufficiently test the design and/or operating effectiveness of controls that included a review element and that the firm selected for testing. In Deloitte’s defense, internal controls and controls testing continues to confound auditors everywhere, if we’re to consider PCAOB inspection reports a kind of authority on what areas baffle auditors the most.
In its response to the inspection report, Deloitte promised to do better and stuff, possibly with the help of robots because human auditors seem to be so bad at this.
We have evaluated the matters identified by the Board’s inspection team for each of the issuer audits described in Part I of the Draft Report and have taken actions as appropriate in accordance with PCAOB standards to comply with our professional responsibilities under AS 2901, Consideration of Omitted Procedures After the Report Date, and AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report.
Executing high quality audits is our number one priority. In order to drive continuous improvements in quality, we are transforming the audit to leverage innovative technologies, along with enhancing the skillsets of our talent to prepare them for a digitally driven future. We are confident that our ongoing digital transformation, along with the investments we continue to make in our audit processes, policies, and quality controls, are resulting in significant enhancements to our audit quality.
Will the remaining Big 4 firms top Deloitte now that PCAOB inspection season has begun? Time will tell. We’re thinking of at least one of them that is unlikely to come out with a boast-worthy deficiency rate.