Audit Deficiencies by Accounting Giants Grew in Latest Inspections, U.S. Regulator Says
Several U.S. accounting giants had greater deficiencies in their audits of public companies’ 2021 financial statements compared to the previous year, according to annual inspection reports released Wednesday by the Public Company Accounting Oversight Board. The regulator, which compiles its findings with a lag, inspected 215 audits conducted by the Big Four accounting firms in the U.S.—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—down from 220 a year earlier.
The firms had an average deficiency rate of about 25%, up from roughly 16% a year earlier. The PCAOB inspects portions of selected U.S. public-company audits to evaluate firms’ state of compliance and assess the controls they use to test the quality of their work.
A deficiency means the audit firm failed to obtain sufficient evidence to back up its opinion. The PCAOB has been working to clear a backlog of inspections, but thus far its reports are arriving at a two-year remove. With the exception of KPMG, the deficiency rate rose at the Big Four.
KPMG’s rate held steady at 26%, based on 54 audits. EY, Deloitte and PwC had previously disclosed these figures in their U.S. audit-quality reports.
EY’s U.S. unit had a deficiency rate of 46% based on the 54 audits the PCAOB reviewed, well up from 21%. Its audit shortcomings largely related to the testing of controls over revenue and related accounts, business combinations and inventory, the PCAOB said.
In its December audit-quality report, EY called its 46% rate “unacceptable" and said it didn’t reflect the firm’s high standards. Deloitte and PwC’s U.S. units had rates of 17% and 9% on 53 and 54 audits in 2021, respectively, up from 13% and 4% a year earlier.
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