Rejoice, people, PCAOB Inspection Report season continues!
From PwC's fresh off the presses 2013 inspection report:
The 2013 inspection of the Firm included reviews of portions of 57 audits performed by the Firm and reviews of the Firm's audit work on two other issuer audit engagements in which the Firm played a role but was not the principal auditor. The inspection team identified matters that it considered to be deficiencies in the performance of the work it reviewed. Four of the deficiencies relate to auditing aspects of an issuer's financial statements that the issuer restated after the primary inspection procedures. In addition, for five of the audits described below, the Firm revised its opinion on the effectiveness of the issuer's internal control over financial reporting ("ICFR") to express an adverse opinion or the issuer subsequently disclosed that there was a previously undisclosed material weakness as of the date of the Firm's opinion on ICFR.
Whoa whoa, hang on. Four of the issuers restated their financial statements after PCAOB inspections and PwC revised their opinion on five issuers? For PwC's 2012 inspection report, there was one restatement and one revision of opinion.
Anyhoo, out of 57 audits inspected, 19 of them were not up to PCAOB standards, bringing PwC's audit failure rate up to 33.3% from 38.9 last year and 41.3% the year previous. High five, P-Dubs!
Just like their counterparts at Deloitte, PwC is still having a little trouble with that damn Auditing Standard No. 5 because ICFR is hard, guys.
As you can see, that Issuer A was a real humdinger. SALY got the best of PwC on this one, with the PCAOB writing "specifically, the Firm, relying on its analysis of the issuer's earnings over the past seven years, determined to use the materiality level it had used in the prior year's audit; however, it failed to establish, in light of a significant decline in earnings from the beginning to the end of the seven years, that the issuer's earnings during that period constituted a reasonable basis for determining materiality."
The response from head of assurance Vincent Coleman and rubberstamped by BoMo is predictable:
The top priority of the Firm and our partners continues to be consistently performing high-quality audits in order to serve the investing community and bring value to the capital markets. To deliver on this responsibility, we must listen to and respond to the evolving needs of our stakeholders while meeting the expectations of our regulators, including the PCAOB. In this regard, we recognize the value of the inspection process and have taken all of the Board’s observations into account in formulating our plan to continuously improve audit quality. We will address the matters raised in the Report in a thorough and thoughtful way. We continue to support the PCAOB in its mission, and are committed to furthering the public interest through the preparation of informative, accurate and independent audit reports.
In other words, GFY and we'll try harder next time. As Colin wrote last year "You get the sense that both sides have fanciful perspectives of their roles — the PCAOB as the ambitious regulator eager to improve things for stakeholders, including the firms that report to them; the firms as the stewards of financial reporting, eager to comply in the best way they know how."
2013 PCAOB Inspection Report Audit Failure Scoreboard
- Deloitte: 28%
- PwC: 33.3%