The Public Company Accounting Oversight Board (PCAOB) is putting the finishing touches on a report on its first-ever inspection of the Big Four accounting firms and many expect bad news for the firms. You can review the Board's final report below.
PCAOB Chairman William McDonough indicated earlier this summer that significant issues had been uncovered by inspectors looking at KPMG LLP, Deloitte & Touche LLP, PricewaterhouseCoopers and Ernst & Young LLP.
These first inspections were more limited in scope than they will be in the future and replace the former AICPA-instituted peer reviews in which one firm reviewed the work of another.
Some specific issues uncovered within individual firms are not likely to be made public since each firm has one year to correct quality-control concerns, Dow Jones Newswires reported. Other issues, such as public company audit work and the "tone at the top" of the Big Four firms, likely will be included in the public report, Dow Jones reported.
In testimony before a House subcommittee in June, McDonough singled out shoddy audit work in which auditors did not properly apply
generally accepted accounting principles.
"If that's what it is, then that's serious," William Ezell, a Washington-based partner with the Big Four firm Deloitte & Touche and former chairman of the American Institute of Certified Public Accountants, told Dow Jones.
However, he added that investors will find it hard to wade through he meaning of a report based on limited, voluntary inspections, which occurred in the first year after the Board was created by the Sarbanes Oxley Act of 2002.
"It will be important, but it won't tell us as much as the second round," Ezell predicted to Dow Jones. The PCAOB must inspect the Big Four firms each year by law. Inspections in 2004 will provide more in-depth scrutiny, McDonough told lawmakers.
Each firm received a copy of the report and had the chance to comment before it is released. Firm spokesmen refused to comment to Dow Jones before the report is released.
Former SEC chief accountant Robert Herdman told Dow Jones that it is imperative that deficiencies found by the PCAOB are corrected and, if necessary, accounting rules be rewritten to address the misapplication of GAAP.
"Some of this stuff is awfully complicated," Herdman told Dow Jones. "Maybe that's a signal that GAAP needs to be simpler."
You can review the entire Report on Inspections of Big Four Accounting Firms now!