On February 2nd, the PCAOB released the 2020 inspection reports of RSM, Crowe, Marcum, Cohen & Co, and Moss Adams. These reports completed the release of 2020 inspection reports for annually inspected firms. The Big 4, BDO, and Grant Thornton’s reports were released in November 2021.
Inspections are one tool the PCAOB uses to monitor and improve the quality of audits.
The PCAOB is required to inspect audit firms that audit public companies and broker-dealers at least once every three years. Firms that provide opinions for more than 100 issuers must be inspected each year. The eleven aforementioned firms are currently the only annually inspected audit firms.
Some of these firms are new to the annual review cycle. Marcum was added during the 2016 inspection cycle. Cohen and Co was added during 2017. And Moss Adams was added during 2019.
MaloneBailey was inspected annually until the 2020 inspection cycle.
Percent of Deficient Audits
The rate of deficient audits has been improving. The Big 4 saw a high of nearly 40% during 2013. However, in 2020 they improved to just 12%. PwC and Deloitte led the way with just 2% and 4% deficient audits during 2020, respectively.
The next seven firms were improving. Over 50% of inspected audits were deficient during 2014 compared to 28% during 2018. This trend reversed in the past two years. Notably, however, Cohen & Co. hasn’t received a deficient audit since 2017.
Most Common Accounting and Audit Deficiencies
Substantive procedures became the most commonly cited audit deficiency during 2020. All 10 reports that included at least one deficient audit cited substantive procedures. They were likely an area of concentration because of the increased use of technology and remote audit methods due to the pandemic.
Little changed about the accounting topics referenced in the accounting deficiencies. Revenue recognition is always an area of concentration. And allowances, business combinations and intangibles involve the use of challenging estimates.
Inspection reports for triennially inspected firms – which include international firms and affiliates – are still to come.
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