PwC showed some improvement in the Public Company Accounting Oversight Board’s latest review of Big Four audits while Deloitte’s deficiency rate increased slightly.
In its 2015 inspections of the two firms, the government’s audit regulator found deficiencies in 13 of 55 audits and partial audits conducted by Deloitte and 12 of 55 audits and partial audits conducted by PwC.
That represents a 24% deficiency rate for Deloitte, up from 21% (11 of 53 audits surveyed) the previous year, and a 22% rate for PwC, down from 29% (17 of 58 surveyed).
As The Wall Street Journal reports, the PCAOB focuses on audits that it believes are at highest risk for problems, so the inspection results may not reflect how often a firm’s overall audit work is deficient.
According to the board, certain of the deficiencies identified in the PwC and Deloitte reviews “were of such significance” that at the time they issued their audit reports, it appeared they “had not obtained sufficient appropriate audit evidence” to support their opinion that the financial statements were accurate.
“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,” the PCAOB said.
The most frequently identified deficiencies were failure to sufficiently test the design and/or operating effectiveness of controls that they selected for testing; failure to sufficiently test significant assumptions or data that the issuer used in developing an estimate; and failure to identify and test any controls that addressed the risks related to a particular account or assertion.
Deloitte said in a letter to the board that “Executing high quality audits is our number one priority. We are confident that the investments we have made and are continuing to make in our audit processes, policies, and quality controls are resulting in significant enhancements to our audit quality.”
“Bringing value to the capital markets by consistently performing high-quality audits remains our top priority, and we will address the matters raised in the report in a thorough and thoughtful way,” PwC said.