Did you know that under the Sarbanes-Oxley Act of 2002, each registered public accounting firm providing audit report for more than 100 companies (issuers) must undergo an annual Public Company Accounting Oversight Board (PCAOB) inspection?
The PCAOB examines selected financial statement audits and internal control reviews done by each public accounting firm. If the board finds deficiencies in that work, they notify the accounting firm. If there are enough deficiencies and they are significant enough, PCAOB will summarize these problems in the public portion of the report.
PCAOB recently reported on the deficiencies identified in their inspection of Deloitte & Touche. The deficiencies included:
- Failure to identify or address errors in the issuer’s application of GAAP
- Failure to perform certain necessary audit procedures
- Failure to obtain significant competent evidential matter to support its opinion on the issuer’s financial statements
- Work papers containing unsupported and unreconciled amounts in accounts that included accounts receivable, prepaid expenses, miscellaneous prepaids, other current assets, accounts payable, other deferred credits, and foreign currency translation
- Identification of known errors that were dismissed without further investigation or discussion or adjustment
- Passed audit adjustments included items that appeared to be intentional, were clear departures from GAAP, were capable of precise measurement, or could be corrected with little cost or effort
Naturally, Deloitte & Touche disagreed with several of the problems identified by the board and objected in a letter to PCAOB.
