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U.S. Audit Firms Show Improving Marks on Annual Inspections

Feb. 2, 2021, 11:36 PM

Deloitte LLP maintained high marks on its annual regulatory inspections for the second year in a row, while the largest six audit firms as a group continued to show improvements in meeting U.S. audit standards.

Just six of Deloitte’s 58 audits picked for inspection in 2019 contained violations, consistent with its results from 2018. Competitors KPMG LLP and Ernst & Young LLP each improved over their 2018 results while PwC LLP lost some ground, according to inspection results the Public Company Accounting Oversight Board released publicly on Tuesday.

Inspectors found deficiencies in 18 audits completed by PwC, also known as PricewaterhouseCoopers, or roughly 30% of the engagements reviewed—an increase from the 14 audits with violations the year before.

Inspection results are one measure of how effectively these firms audit the books of their clients and the PCAOB has pledged to help boost audit quality, which had seemed to plateau.

The board also posted results for eight other large firms. The reports cover inspections completed in 2019 and that reviewed audit work done the year prior. This round of inspections also included cross-firm reviews targeting how the firms manage multi-location audits.

Inventory counts, business combinations, and the value of long-lived assets and goodwill proved to be trouble spots for the largest four firms.

PwC and KPMG each had clients that restated their financial reports as a result of inspection findings. The two firms, plus EY, also had to revise their opinions on the effectiveness of clients’ internal controls as a result of the inspections.

The board reported deficiencies in nearly 30% of KPMG’s audits, the 17 engagements were two fewer than the year before. EY improved to just 18% of its reports with violations, compared to 25% the previous year.

BDO USA LLP improved slightly, dropping to 42%, from 47%. And Grant Thornton LLP improved with inspectors identifying violations in 22% of its audits, compared to 25% the year before, according to the reports.

To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Sony Kassam at skassam1@bloombergtax.com

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