It’s fair to say Grant Thornton auditors are no longer on the struggle bus.
From 2010 to 2015, the Purple Rose of Chicago had an average audit failure rate of 44% in its PCAOB inspection reports during that time frame, including a whopping 65% worth of screw-ups in the firm’s 2012 report, which gave GT the title of worst auditing performance ever at that time.
We don’t know what exactly happened but things finally started to click with Grant Thornton auditors starting with the firm’s 2016 report card. From 2016 to 2018, GT cut its average percentage of audits with significant mistakes exactly in half, including a mind-blowingly good 18% deficiency rate in 2017.
Now that Grant Thornton’s 2019 inspection report is out, let’s see if the firm’s auditing is closer to its bad 2010-2015 error rate or its good 2016-2018 one:
So if my calculations are correct, that’s an error rate of 22%—the exact same as Grant Thornton’s average error rate from 2016 to 2018.
See BDO USA auditors, there’s hope for you yet.
Here’s a look at GT’s deficiency rates through the years:
- 2010: 29%
- 2011: 43%
- 2012: 65%
- 2013: 56%
- 2014: 32%
- 2015: 41%
- 2016: 24%
- 2017: 18%
- 2018: 25%
- 2019: 22%
Of the seven audits with significant errors, five had a total of 27 separate mistakes in the audit of internal control over financial reporting—the most over Grant Thornton’s last three report cards from the PCAOB.
Here are the areas that baffled Grant Thornton auditors the most during the 2018 inspection cycle:
Two of the seven deficient audits were for issuers in the discretionary sector, while another two were for issuers in the IT sector. There were one each in communication services, financials, and real estate.
Take a look at GT’s latest report card for yourself:
Those Who Know, Know BDO … Is Consistently Terrible At Auditing
Properly, the word sufficient is used by the PCAOB in their evaluation which is a subjective term in this context. So, while not defending any firm, per se, many of these deficiencies are a matter of degree. Testing was done, but was deemed by one party to not be enough.
Again, not to defend the firms but to understand the underlying process, it should also be noted that the engagement selection process starts with say hundreds to over 1,000 audits in some cases, identifies the theoretically most contentious and difficult ones and then selects the perceived highest risk, most complicated, SUBJECTIVE and difficult areas within the audit to review.
Therefore, it is also important to understand that one can’t extrapolate/generalize the deficiency rate of the reviewed engagement areas to the whole population of audits completed by each firm.
Both the PCAOB and the registered accounting firms, along with capable, competent and ethical management play an important role in the reliability of our capital markets and protection of the investor.
(note: I was a public company audit partner prior to the formation of the PCAOB, served as a member of the PCAOB Standing Advisory Group for two terms and am Chair emeritus of COSO.)
“…it should also be noted that the engagement selection process starts with say hundreds to over 1,000 audits in some cases, identifies the theoretically most contentious and difficult ones and then selects the perceived highest risk, most complicated, SUBJECTIVE and difficult areas within the audit to review.”
You would think that the most contentious and difficult audits would be the ones that the firm assigns its best staff to and makes sure to produce high quality audits to protect the firm from the related risk. I think it would be fair to assume that the firm would assign its slackers to the less contentious and easier audits.
If the firm is incapable of doing a high quality audit on its tough clients, one can only imagine how shitty a job they do on the “slam dunk” audits.
Grant Thornton: A quality audit 4 out of every 5 times.
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