A recently released report from the Public Company Accounting Oversight Board (PCAOB) revealed systemic accounting compliance
problems within eight major accounting firms' audits of internal control over financial reporting.
The report, which represents the first full review of its kind, presented the results of inspections of domestic annually inspected firms that were conducted two years ago. The findings indicated that firms behind 46 of the 309 integrated audit engagements inspected in 2012, which amounted to 15 percent, had failed to obtain sufficient audit evidence to support their internal control over financial reporting (ICFR) audit opinions.
Although inspections of firms' ICFR accounting management
procedures were also conducted in 2011, not all of the reports have been finalized. That being said, early indications from finalized 2011 inspection reports suggest that the number of deficient engagements rose from 15 percent to 22 percent. The majority of the firms making up that 22 percent—the equivalent of 82 percent—also did not gather enough audit evidence to support their audit opinions.
"As this report
today shows, if a firm has not done enough work to support its opinion on the internal controls, it is also unlikely to be able to support its audit of the financial statement," PCAOB board member Jay Hanson noted during a recent press conference held at the PCAOB's New York offices, as quoted by
Accounting Today.Good news as well as bad news
PCAOB board member Jeanette Franzel observed that while the rate of deficiencies revealed by inspections had increased between 2010 and 2011, the findings laid out in the PCAOB report were not entirely negative. Rather, the report contained both good and bad news.
"The bad news is that the number of audits in which firms failed to obtain sufficient audit evidence to support their audit opinions on internal control over financial reporting is too high, and getting higher," Franzel said, as quoted by the news source. "The good news is that, in many of the audits inspected, our inspections staff did not find such deficiencies."
Specifically, the inspection revealed that a number of firms have succeeded in their efforts to appropriately implement PCAOB's Auditing Standard No. 5, which requires auditors to plan and perform audits related to ascertaining the presence of material weaknesses.