Last month the PCAOB teased the results of its 2020 inspection reports by saying audit firms were getting better at not being awful at auditing. From the PCAOB’s Staff Update and Preview of 2020 Inspection Observations:
For the majority of the annually inspected audit firms, we identified fewer findings in 2020 compared to our 2019 inspections. In our triennially inspected audit firms, some improvements were noted, although deficiencies continue to remain high.
Annually inspected firms would include the Big 4, Grant Thornton, RSM US, and BDO USA, for example. Now that the US’s audit cops released the 2020 report cards for six of those firms earlier this week, we’ve seen substantially less mistakes made in public company audits at two of those firms: PwC and Deloitte.
Is the pandemic the reason why PwC and Deloitte had the No. 1 and No. 2 lowest audit deficiency rates of all time, respectively? Maybe. The PCAOB admitted that its response to the pandemic included:
- Conducting all inspections remotely;
- Adjusting its inspection approach to consider the impact of COVID-19 on the audits of public companies;
- Refining its planned quality control procedures; and
- Providing insights to inform stakeholders on the PCAOB’s oversight activities related to the COVID-19 pandemic.
Who knows if those heavy-handed and intimidating inspectors are just as thorough going through the audit inspection process off-site as they are on-site. But it does make you wonder if these audit firms are actually getting better at auditing or is it the circumstances caused by the pandemic that are making it seem like these firms are getting better at auditing? Time will tell.
A day after the PCAOB released EY’s latest inspection report, Uncle Ernie put out its 2021 audit quality report, which includes all sorts of boring EYspeak on how performing high-quality audits builds a better working world … or something like that. The report also includes a colorful snapshot of key EY audit metrics:
One stat missing from this chart is EY’s audit error rate from its 2020 inspection report, which was 15.4%, down from 18% in its 2019 report and 26% in its 2018 report. But there is an entire section of EY’s latest audit quality report devoted to PCAOB inspections and how the firm isn’t botching as many audits as it used to:
In a press release accompanying the audit quality report and in the report itself, you’ll see quotes from EY leaders who are just beaming with pride that their US audit professionals are
more competent than EY Germany’s auditors “committed to continuously improving the quality of the firm’s audits and strengthening the firm’s system of quality control.”
Kelly Grier, EY US chair and managing partner who announced to staff on Oct. 21 that she is not seeking a second term, said: “The independent auditor’s role in promoting trust and confidence in the capital markets is critical and our 2021 report highlights our commitment to audit quality. I am so proud of how we’ve continued to focus on the fundamentals—performing high-quality audits with integrity, independence, and professional skepticism—while using technology to innovate how we audit and meeting new challenges such as reimagining where we’ll work and how we’ll maintain our culture of belonging.”
Says Denise Pelli, EY’s US director of professional practice quality and regulatory matters: “Our latest inspection report indicates that the investments we have made in audit quality are paying off. The results reflect a focus by our audit teams on careful execution and timely supervision and review. They also reflect our investments in the digital audit and other changes to our audit approach and support from our quality network and specialists.”
Great job, everyone. Now share what you’re doing with your colleagues in Germany.
Below is EY’s 2020 PCAOB inspection report, if you are inclined to read it:
EY Isn’t Botching As Many Audits These Days, According to Latest PCAOB Inspection Report
It’s True: PwC Had a Nearly Flawless 2020 PCAOB Inspection Report
Deloitte Came Oh So Close to Having a Historically Low Audit Deficiency Rate
EY US Chair Kelly Grier Will Not Seek a Second Term