While PwC waits with bated breath for the PCAOB to release the firm’s 2020 inspection report so it can presumably take an audit quality victory lap around the other Big 4 firms, Deloitte can at least say it has had the lowest audit failure rates among the Big 4 the past three years.
For the Big 4’s 2017 PCAOB inspection reports, Deloitte had an audit deficiency rate of 20%, which was the lowest of the Four Horsemen of the Accounting Firm Apocalypse. Big D followed that up with an 11.5% deficiency rate in 2018, which at the time we thought was the lowest ever by a Big 4 firm.
The PCAOB on Tuesday released the 2019 inspection reports for each of the Big 4 firms, and while PwC’s auditing has gotten worse, Deloitte’s auditing has gotten better:
The PCAOB found fault with only 10.3% of the 58 audits inspected during the 2018 inspection cycle, which we now believe is the lowest deficiency rate ever by a Big 4 firm (until that alleged spectacular 2020 PwC inspection report is released).
Here’s a look at Deloitte’s audit deficiency rates through the years:
- 2009: 21%
- 2010: 45%
- 2011: 42%
- 2012: 25%
- 2013: 28%
- 2014: 21%
- 2015: 24%
- 2016: 24%
- 2017: 20%
- 2018: 11.5%
- 2019: 10.3%
Of the half-dozen audits that had deficiencies in Deloitte’s 2019 inspection report, the most common mistakes called out by inspectors related to financial statement audits were:
- Not performing sufficient testing related to an account or significant portion of an account or to address an identified risk.
- Failing to sufficiently evaluate significant assumptions or data that the issuer used in developing an estimate.
- Not performing substantive procedures to obtain sufficient evidence as a result of overreliance on controls (due to deficiencies in testing controls).
And inspectors dinged the following areas pertaining to audits of internal control over financial reporting:
- Not performing sufficient testing of the design and/or operating effectiveness of controls selected for testing.
- Not identifying and testing any controls related to a significant account or relevant assertion.
Per the report, the six issuer audits with deficiencies were in the energy, financials, health care, industrials, IT, and materials industries.
You can read Deloitte’s 2019 inspection report in its entirety here:
Deloitte’s 2017 PCAOB Inspection Report Is Pretty Not Shitty
Deloitte’s 2018 PCAOB Inspection Report Shows They’ve Gotten a Lot Better At This Thing Called Auditing