PCAOB Finds Failures in Deloitte's Audit Work

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The Public Accounting Standards Board (PCAOB) issued its report on Thursday on its inspections from May to November 2004 of past audits performed by Deloitte & Touche. The report cited “audit deficiencies” including failure to identify or address accounting errors, according to Reuters.

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The PCAOB report found that some of the errors “appeared likely to be material. . . . In some cases, the deficiencies identified were of such significance that it appeared to the inspection team that [Deloitte] had not, at the time it issued its audit report, obtained sufficient competent evidential matter to support its opinion on the [company's] financial statements,” the Financial Times reports.

Deloitte responded in a statement, “We have taken appropriate action to address the matters identified by the inspection team. . . . We are supportive of the process,” Reuters reports.

Describing the inspection process, PCAOB notes in their report that “inclusion in an inspection report does not mean that the deficiency remained unaddressed after the inspection team brought it to the firm's attention. Under PCAOB standards, a firm must take appropriate action to assess the importance of the deficiency to the firm's present ability to support its previously expressed audit opinions.”

The Board also cautioned in its report against “drawing conclusions about the comparative merits of these firms based on the number of reported deficiencies in any given year. The total number of audits reviewed is a small portion of the total audits performed by these firms, and the frequency of deficiencies identified does not necessarily represent the frequency of deficiencies throughout the firm's practice.”

Deloitte “respectfully” disagreed with findings of the PCAOB of significant deficiencies in their audits of two publicly held companies. But the Financial Times reports that the Big Four firm disclosed that four clients had issued restatements as a result of the PCAOB's work.

The PCAOB reviewed 125 audit engagements performed by Deloitte in the US at public companies. The accounting oversight board did not identify the companies that were chosen for review.

The PCAOB's report on Deloitte & Touche was the second in a series of reports on annual inspections of Big Four audits. A report on KPMG published earlier found fault with some audits. Reports on audits done by PricewaterhouseCoopers and Ernst & Young, the largest of the big Four Firms, are expected in the coming weeks.

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