Oh boy, KPMG's PCAOB inspection report is finally out. Michael Rapoport at the Wall Street Journal has the lowdown:
The 28 deficient audits were out of 52 KPMG audits and partial audits reviewed by the Public Company Accounting Oversight Board in its annual inspection report issued Tuesday, for a deficiency rate of 54%. That is up from a year ago, when PCAOB inspectors found 23 deficient audits out of 50 reviewed, for a rate of 46%.
He didn't mention this, directly from the report, but it's worth noting:
[I]n one of the audits described below, after the primary inspection procedures, the Firm revised its opinion on the effectiveness of the issuer's internal control over financial reporting ("ICFR") to express an adverse opinion.
- Deloitte: 21%
- PwC: 29%
- EY: 36%
- KPMG: 54%
Rapoport reports that the average deficiency rate for all the Big 4 was 35% for 2014, an improvement from 39% last year. That's something. Right?
Now, you probably won't be surprised when I tell you that AS No. 5 (Integrated) was an issue on 27 of those 28 audits. But the fact that those 27 issuers had a 73 total deficiencies might be surprising. Is that a lot? Full disclosure: I used to work at KPMG, never had an engagement subject to PCAOB inspection and think 73 deficiencies is a lot.
Besides good ol' AS No. 5, AS No. 13 (Responses to Risks of Material Misstatement), AU 342 (Estimates) and AU 350 (Sampling) gave them fits, too. Financial Services was the industry with the most problems, followed by Industrials and Information Technology was pretty bad, also.
As for the financial reporting areas, inventory was an area that got lots of marks, but loans (along with their reserves) and revenue recognition by far had the most dings.
The firm's response says they take the inspections seriously, that they will help them improve, committed to improving audit quality, investors etc. etc. In other words, they'll get 'em next time.