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What is an acceptable audit deficiency rate?

Audits were reported for three of the four "Big 4" firms. "The 28 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm were out of 57 audits or partial audits conducted by Ernst & Young that the PCAOB evaluated—a deficiency rate of 49%. In the previous year, the board's inspectors found deficiencies in 25 of 52 audits inspected, a rate of 48%." (WSJ, 8/28/2014, Ernst & Young 2013 Audit Deficiency Rate 49%, Regulators Say) "The 19 deficient audits were out of 59 PwC audits and partial audits reviewed by the Public Company Accounting Oversight Board in its annual inspection report on the firm issued Monday. That rate of 32% is down from last year's 39%, when the PCAOB found 21 deficient audits out of 54 inspected." (WSJ, 6/30/2014, Inspection Finds Defects in 19 PricewaterhouseCoopers Audits) "The findings, issued Monday, were a slight uptick from the rate of problems the regulator found at Deloitte in last year's inspection. The 15 deficient audits represented 28% of the 53 Deloitte audits and partial audits reviewed by the Public Company Accounting Oversight Board in its 2013 inspection report on the firm." (WSJ, 6/2/2014, Regulator Finds Deficiencies in 15 Deloitte & Touche Audits) Will identifying the lead audit partner improve these results? The rule should be ready this month.


(Controller) |

I understand the PCAOB will punish audit firms (significant fines to audit partners) if they do not find deficiencies. It seems it is the old internal revenue service approach; they know people are hiding things and they expect you to find them. What I do not know is the rate or type of deficiency goals they impose on the audit firms. Those goals in comparison with actuals would be an interesting analysis.

(CFO) |

This does not surprise me.

It's also why there is this mistrust of audited financial statements in general.

The integrity of the independent auditor has been tarnished. It will take years and more industry changes to recover.


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