Please ensure Javascript is enabled for purposes of website accessibility

Deloitte’s 2012 PCAOB Inspection Report Shows That the Firm Is Less Awful at Auditing Than It Used to Be

Posted on by Caleb Newquist

The PCAOB news is not letting up. Today, the Board released the 2012 inspection report for Deloitte. Considering the turnaround time in years past, this is pretty fast. The 2011 report was issued last December.

If you count yourself as one of those people who enjoy A) reading these reports and B) quality auditing, then you will be pleased. Take it easy, you won't be that pleased, but you'll be happy to know that the PCAOB has expanded Part I of the report and Deloitte doesn't suck at auditing nearly as much as it used to.

Here's a shortlist of things you might want to know:

  • PCAOB inspectors performed fieldwork on 51 audit engagements at 31 of Deloitte's 66 U.S. offices.
  • Thirteen different issuers were cited as having deficiencies in the audits of their financial statements.
  • After the list of deficiencies, there is a brief discussion about the Audit Standards applicable to the deficiencies with AU 230, Due Professional Care in the Performance of Work, AS No. 5, AS No. 13, and AS No. 15 getting extra attention. Then, there's this handy table that helps summarize:

Part I also includes some "General Information Concerning PCAOB Inspections" which is probably more than you ever wanted to know including this: "Board inspection reports are not intended to serve as balanced report cards or overall rating tools." UDPATE: I've been informed that this language is not new in the reports, but it does have the tendency to jump around.

I suppose we have to give some credit to both parties here: For the PCAOB, they are attempting to make these reports a little more informative and timely. For Deloitte, if you consider the fact that the firm's error rate was 45% in the 2010 report, the quality of the audits are better than they used to be.

And you get the sense that Deloitte is quietly aware of their improvement. Their response to the PCAOB is three paragraphs of pure boilerplate; also a far cry from the combative letter they wrote in 2009. Is everyone honestly trying to get better at this? I'll reserve my excitement for now.

Why? Because it's still easy to be cynical about these reports. So if you have the energy after a three-day weekend — I sure as hell don't — you may express any doubts now.

2013 Deloitte Touche LLP 2012

Related Posts

PwC, Deloitte Enjoying Their Booming Advisory Businesses, Thankyouverymuch

This morning we linked to a Reuters report about the horse race between Deloitte and PwC for the biggest of the Big 4. It reports virtually nothing new that we haven’t discussed here already including Deloitte jumping P. Dubs last year by a whopping $9 million (thanks mostly to keeping their consulting business in house), the hiring sprees, the acquisitions, and oh! the audit business sucks:

With audit revenues leveling off in developed markets, the firms have been making a push in growing countries such as China and India and plowing ahead with investments in consulting, where business is growing after a recessionary slump.[…] The big four are expected to report their fiscal 2011 revenues in coming weeks and any significant growth will likely once again be in the consulting area, said Jonathan Hamilton, managing editor of Accounting News Report. “The audit business, while certainly the staple of all these firms, is a slow-growth business,” Hamilton added.

In other words, the consulting advisory business is hot and audit is not. And what causes some people to fly off the handle is how the firms have sold everyone on the idea that they can still miraculously be the bastion of good business principles ethics. Well, maybe not everyone:

More worries loom from stepped-up regulatory scrutiny. As consulting revenues grow, complaints are surfacing again that firms will be tempted to go easy on audit clients for the sake of winning or keeping a consulting job — a charge the audit firms deny.

Last week, European Union lawmakers approved a report that calls for barring auditors from providing audit and non-audit services to the same client. The report is nonbinding but could shape a draft law in the works.

PwC and Deloitte both said there was no conflict of interest in the consulting services they provide. Much of their consulting is done for companies they do not audit and they follow regulators’ standards and companies’ own restrictions on the kind of consulting they do for audit clients.

The report doesn’t mention many things that have cropped up (some recent, some not so much) including the nearly 500 reprimands Deloitte had in 2009, the rash of insider trading, or PwC’s incestuous Satyam scandal but talking points are also used to address those issues. These firms didn’t get to where they are without figuring out how to play the media game.

One thing is for sure – the firms are going to depend on their consulting/advisory businesses for growth until someone banishes audit firms from offering any other services at all. And God knows what that will take.

In close race for No 1, Deloitte, PwC grow apace [Reuters]

Big 4 Calling On All Blockchain Nerds to Come Nerd Out At Their Firms

From CoinDesk: “Big Four” professional consulting firms Deloitte, KPMG and EY are all in the […]

Deloitte Playing Superhero to Group Hoping to Buy Manchester United

Let’s stop digging E&Y for five minutes and talk about Deloitte trying to sex itself up as tax advisory coaches to the group hoping to purchase Manchester United.


Guardian:

Deloitte, which has worked hard to build up its sporting credentials with its annual audits of football’s finances and consultancy work for a host of clubs, is understood to have become the latest big financial hitter to become associated with the Red Knights, the would-be buyers of Manchester United, in an advisory capacity.

Alongside Freshfields, which is supplying legal expertise, and Nomura, the Japanese investment bank that has been responsible for contacting all the 40 or so wealthy individuals who expressed concrete interest in the plan, Deloitte is believed to have been supplying advice on tax structures and how to structure any bid most efficiently.

Yeeeeeeeeeeah I can see it now, “casual football Friday” memos circulated around Deloitte’s UK offices about appropriate garb for the field and some hokey “We Are the World” sing-a-long at the end when Manchester United kicks whomever’s ass (I don’t watch the stuff). Excellent.

In the spirit of not discriminating when ripping on the Big 4, this Deloitte flick nearly brought me to tears. Maybe it was the faux hawk or the overgrown baby beard. Perhaps it was the fucking cape. You decide.

The Green Dot FTW!