Here’s a number of the day for ya: 50.7%. That is the average failure rate of BDO USA audits in PCAOB inspection reports from 2010 to its most recent 2019 report, in which PCAOB inspectors found significant errors in 42% of audits reviewed.
Public accounting firms that have been historically bad at auditing, like Grant Thornton and KPMG, have made strides in the past couple of years to improve their audit quality. GT had a audit deficiency rate of 18% in 2017 and 25% in 2018, while KPMG lowered its percentage of failed audits from 50% in 2017 to 29% in 2019.
But not BDO. The House of Berson remains the derpiest firm when it comes to botching audits.
Here’s how BDO did and what parts of financial statement and internal control over financial report audits BDO auditors bungled the most, according to its 2019 PCAOB inspection report:
Three of the 11 BDO audits that weren’t up to snuff had a single deficiency, while seven had multiple deficiencies and one, identified as Issuer A, was classified as having an incorrect opinion on the financial statements and/or ICFR:
Type of audit and related area affected
In our review, we identified deficiencies in the financial statement and ICFR audits related to Revenue.
Description of the deficiencies identified
With respect to Revenue at one of the issuer’s business units:
The firm selected for testing a control that consisted of the review of new contracts and certain changes to existing contracts. The firm did not evaluate the review procedures that the control owner performed, including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)
The issuer recognized revenue at a point in time. In its evaluation of the issuer’s revenue recognition, the firm did not evaluate the specifications of the issuer’s products and contracts in determining if there were practical limitations on whether the products had an alternative use in conformity with FASB ASC Topic 606, Revenue from Contracts with Customers. (AS 2810.30)
In connection with our review, the issuer reevaluated its controls over the evaluation of the point in time method of revenue recognition and concluded that a material weakness existed that had not been previously identified. The issuer subsequently revised its report on ICFR to reflect this material weakness, and the firm modified its opinion on the effectiveness of the issuer’s ICFR to express an adverse opinion and reissued its report.
That particular audit was for an issuer in the industrials industry, but BDO screwed up the most on audits for issuers in the financials industry (three).
Here’s a historical look at BDO audit deficiencies from 2010 to 2019:
- 2010: 26%
- 2011: 39%
- 2012: 55%
- 2013: 65%
- 2014: 74%
- 2015: 52%
- 2016: 67%
- 2017: 39%
- 2018: 48%
- 2019: 42%
If you see anything else interesting from BDO’s latest report, let us know.