TheCorporateCounsel.net

In March, John shared that the results of the PCAOB’s last inspection reports on the Big 4 accounting firms were…not great. New inspection reports are now out showing that the overall deficiency rate among the Big 4 has stabilized versus the prior year. The WSJ reports:

The firms collectively had an average deficiency rate of about 26%, the same as a year earlier. PCAOB Chair Erica Williams said the findings from the inspections released Thursday, which covered audits of 2022 financials, were still unacceptable.

Deloitte and PwC’s U.S. units had rates of 21% and 18%, respectively, both up from 17% and 9% a year earlier. EY continued to have the highest deficiency rate among the Big Four in the U.S., at 37%, down from 46% the year prior, which marked a surge from 21% the year before that. KPMG’s rate fell to 26% from 30%.

The WSJ subsequently reported on EY’s efforts to refresh its audit practice, including by “resigning from serving certain public-company audit clients and limiting new clients” starting about 18 months ago. It’s also focused on enhancing audit tools & methodology (investing “$1 billion over three years in part to strengthen artificial intelligence-enabled audit and tax platforms”) and improving training.

We’ve heard a lot from the PCAOB about the need to improve audit quality and reduce these deficiency rates, so it might seem surprising that rates only leveled out (without improving overall). But keep in mind that the results John covered in March were from 2022 inspections of 2021 audits, and the numbers reported by the PCAOB now are from 2023 inspections of 2022 audits. The PCAOB’s press release notes that these inspection reports were released “months sooner than reports have been released in recent years thanks to ongoing efforts to speed the release of reports.” It also highlights additional accompanying resources:

– The inspection reports are accompanied by a new staff Spotlight publication, which provides an overview of staff observations from the 2023 inspections.

– The PCAOB also published new charts on its website illustrating much of the data in the U.S. GNF and U.S. annual Non-Affiliate Firms (NAF) inspection reports for the first time as part of ongoing efforts to increase transparency in inspection data and make it easier for stakeholders to understand and compare inspection results both across firms and over time.

This additional transparency should allow audit committees to better evaluate auditor performance and monitor audit quality, in line with Chief Accountant Paul Munter’s statement on the recent increase in deficiency rates found in audit inspections and the audit committee’s role in ensuring high-quality audits.

– Meredith Ervine