Please ensure Javascript is enabled for purposes of website accessibility

Accounting News Roundup: The Ups and Downs of Audit Quality; Middle Ground on IFRS; Irrelevant Enron Mentions | 11.18.15

Big Four audit quality can differ widely — even at the same firm [MW]
PCAOB board member Lewis Ferguson writes that "even as we see inspection results improving at the U.S. firm, their affiliated firms around the world appear to be struggling, or vice versa." As evidence he offers a couple of charts: one that shows the deficiency rates in the US firms and a second of deficiency findings of non-US firms. The most stark example belongs to Deloitte & Touche:

[W]e see that in Deloitte’s 2013 inspection, 28% of the public company audits that the PCAOB inspected were found to have at least one Part 1 inspection finding, which means that the firm did not satisfy its fundamental responsibility to obtain reasonable assurance about whether the financial statements are free of material misstatement. That was down from 42% in its 2011 inspection.

For the non-US firms, the performance is a different story:

[I]n the next chart that the Deloitte non-U.S. affiliated firms that the PCAOB inspected (a subset of all of the Deloitte affiliates) were found to have at least one Part 1 inspection finding in 67% of the audits inspected. This number was up from 41% in its 2011 inspection.

As another example, KPMG's US firm's performance got worse each year in 2011-2013, while non-US firms improved each year over the same period.

Basically he's saying that methods are not consistently applied and audit quality can vary widely across the globe. Although firms (and the PCAOB) might want to see more consistency in performance, this comes in handy when a massive audit failure occurs, when firms prefer to point to their affiliates as independent members of their network.  

Top SEC Accountant Urges Supplemental Use of Global Rules for U.S. Companies [WSJ]
James Schnurr is recommending that US companies "be allowed to use global accounting rules to supplement their main financial statements." This would be a "middle-ground approach" in between the breathless IFRS cheerleaders and US GAAP fundamentalists.

Politicians lambast accounting firms over Kids Company collapse [Accountancy Age]
A member of parliament in the UK felt that the failure of a charity needed an Enron-drop: "I am not going to say that this is an Enron moment, but there has been a collective passing of the buck which I am rather uncomfortable with." While the buck passing might be true, it's good that you aren't saying that it's an "Enron moment" although you are going for the effect of saying it's an "Enron moment" which is almost worse, because a charity with poor cash management is obviously not like Enron. 

In other news: