Another day, another PCAOB report. Today, our lucky victim is BDO USA, LLP.
Of the 23 audits inspected, the PCAOB found deficiencies in 15 of them. For those of you playing along that home, that puts them at a 65% failure rate which means they are in the lead for crappiest audits in America of 2013 inspection reports released so far.
- Deloitte: 28%
- McGladrey 31%
- PwC: 33.3%
- KPMG 46%
- EY: 50%
- BDO: 65%
Nice work, y'all! You're just as bad as Grant Thornton was last year, and that's bad.
Last year, BDO came in at 39%, so either the firm is getting worse at auditing or the PCAOB is getting tougher on audit firms — we'll leave that one to you all to argue amongst yourselves.
As with their Big 4 counterparts, BDO's biggest problem was getting Auditing Standard No. 5 right, racking up 14 dings in that area. In case you weren't paying attention just 30 seconds ago, that means all but one of the audits considered "failures" by the PCAOB were deficient in that area.
Let's talk about that one audit that didn't get dinged in AS5, Issuer F:
The Firm failed to perform sufficient procedures to test revenue from contracts accounted for using the percentage-of-completion method. Specifically, the Firm failed to sufficiently test costs incurred and allocated to individual contracts, as it limited its procedures to testing only one contract that represented less than one percent of total revenue. The Firm also failed to sufficiently test the estimated costs to complete, as the Firm's testing was limited to (1) for all fixed-priced contracts, comparing the estimated costs to complete to the corresponding estimates at prior and subsequent dates and (2) for certain contracts, comparing the estimated costs to those originally budgeted. The Firm's procedures to evaluate significant variations identified in that testing were limited to inquiring of the issuer's finance staff, internal audit personnel, and project managers, without obtaining corroboration of the responses to those inquiries . ( AS No. 13, paragraph s 8 and 13; AU 342, paragraph .11)
Let us all remember what the PCAOB says about audit deficiencies identified in these reports:
Whether or not associated with a disclosed financial reporting misstatement, an auditor's failure to obtain the reasonable assurance that the auditor is required to obtain is a serious matter. It is a failure to accomplish the essential purpose of the audit, and it means that, based on the audit work performed, the audit opinion should not have been issued.
And all the people in the church say "Amen!"