Those Who Know, Know BDO … Is Consistently Terrible At Auditing

Thumbs down BDO LLP

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.

Done

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9 Comments

  1. The reason for the perennial piss poor performance is this firm’s capitulation to globoHomo.

    “Diversity is our greatest strength” – until it allows for literally failing grades, like getting F after F on a report card.

    The firm is so consumed with neo-liberal, debt-laden, cosmopolitan, borderless, raceless, genderless, consumerist, speculative capitalism that it’s fiduciary duty to the public’s trust – trusting that auditors will act with professional skepticism and prudent conservative due diligence when performing audit procedures.

    The firm is more concerned with the genderfluid jihad on pronouns then with doing the damn job correctly.

    DIVERSITY IS CHAOS. AND BDO’S UNACCEPTABLE QUALITY OF WORK IS PRETTY ETERNAL.

    Diversity is chaos and this firm makes me absolutely sick to my stomach I am literally taking the most violent sh1t on the toilet right now as I type this…smoking a cigarette and drinking coffee and getting ready to go to work at my real job – rehabilitation of the secondary highways that run through a handful of municipalities in my state.

    I used to wage-cuck at BDO and strived to be a good accountant and appease and kiss ass for upcummies because of the wonderful white-collared corporate life calling me – seated in front of the laptop, the extended display, the ten-key , the source documents, the jignat coworkers …man I am so glad I stopped dabbling in swine.

    HAPPY TAX SEASON DON’T FORGET YOUR RED BULLS AND ADDERALL AND TUMS AND DORITOS.

  2. Is BDO really that bad? Or do PCAOB inspectors “dump” on firms other than the Big Four which audit 97.5% of all SEC registrants by market cap?
    Will the PCAOB inspect and find fault with the audits of the entities which recently received $3 trillion from the Fed? Or are these entities, “too big to inspect”?
    What did the PCAOB do with the 2008 Fed balance sheet expansion?
    Does the PCAOB even know what the Fed is?
    I put no credence in any PCAOB action.
    Can BDO pull a “Franzel” and create what appears to be a sinecure for a “former” PCAOB commissioner?
    How much damage can BDO, which might audit about .5% of all SEC registrants by market cap, do anyway?

    1. The PCAOB absolutely spends more time going after the biggest firms auditing the biggest companies. Some audits are inspected every 3-5 years (not a set rotation of course). Firms like BDO have no businesses auditing issuers if they can’t handle the regulators.

      1. Totally agree with that. Based on the last three years, only two non-Big 4 firms are part of the 5 lowest average deficiency rates – Crowe, who dominates the public financial institutions market and is therefore specialized and expectedly low, and Grant. RSM and BDO come in dead last (highest % findings) of the 11 firms with annual PCAOB examinations, but are two of the largest firms in the middle market, which is a shame. Shouldn’t fail to mention that KPMG lands right behind them in the bottom 3 of the 3-year average…eesh.

  3. The PCAOB brought about 15% of its total disciplinary actions against the Big Four (BF), the BF’s foreign affiliates and the partners of these firms. Imagine, the four firms which audit 97.5% of all SEC registrants by market cap (MC) were subject to 15% of all PCAOB disciplinary actions.
    The PCAOB could make a new rule, stating it will not continue the registration of any firm which audits more than 10% of SEC registrants by MC. Let the BF break up into the “DIrty Dozen”. Sure.
    This means the firms which audit 2.5% of all SEC registrants by MC were subject to 85% of PCAOB discipline. Let’s do some arithmetic: .15 / .975 = .1538; .85 / .025 = 34; 34 / .1538 = 221. Imagine: non-BF firms are disciplined at 221X the rate of the BF based in MC. Are these firms 221X the relative threat to the capital markets as the BF?
    In 1976 Lee Metcalf, then a US Senator complained in the “Accounting Establishment”, that the SEC engaged in discriminatory practices with respect to CPAs. Nothing has changed in 46 years!
    Read some of pogo.org’s stuff about the PCAOB, then try to defend it.
    The BF own the PCAOB, in my opinion.
    With $43.2 trillion in MC of SEC registrants, according to the PCAOB’s 2018 Strategic Plan, why is the PCAOB looking at audits of SEC registrants with under say $43.2 million in MC, or one millionth of the total?
    Where are the “inspections” of large banks with $50 trillion of notional value of derivative books? How are these derivatives valued? Are these derivative values even auditable?
    Enough!

  4. George sounds like a real dumbass who has no idea what the purpose of the PCAOB is. Why the hell are you talking about the Fed

  5. What do you think the purpose of the PCAOB is?
    I think as a matter of fact, it is the Big Four’s cartel enforcer.
    The PCAOB supposedly has various sources of information it looks at for referrals.
    Why not the Fed?

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