The accounting firm also ran into trouble with inspectors over a client in the software industry. Despite a wide range in the renewal rates charged to the client's customers for post-contract support, the client concluded — and Grant Thornton concurred — that it could use a single stated renewal rates to establish the fair value of all the support contracts.
The firm was also written up for deficiencies in two audits related to testing auction-rate securities. In both audits, Grant Thornton obtained valuations for the securities from a specialist it hired. But the account firm "failed to obtain an understanding of the methods and assumptions that the specialist had used to value the securities." Also, in one audit, the specialist was unable to estimate a value for some of the securities, and relied on an estimate supplied by the client.
In a written response to the inspection, Grant Thornton noted that "the issues raised in the report reflect the fact that accounting and auditing standards are highly complex, and require significant professional judgment." Although the firm said that it supports the PCAOB inspection process, and discussed with the board certain comments made in the reports, "we disagree with certain views of the PCAOB."
Grant Thornton contended that judgments questioned by the inspectors "were appropriately supported and well reasoned." The letter continued, "While we believe that the PCAOB should continue to challenge judgments and documentation during the inspection process, we do not believe that, in the end, reasonable judgments should be criticized and second guessed. Such a process will ultimately lead to inefficient audits due to the fear of unnecessary criticism."
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