Significantly screwing up half of your audits inspected by the PCAOB won’t get your firm included in the pantheon of worst PCAOB inspection reports of all time. RSM US beat that handily in 2017. BDO USA has had audit failure rates of 74% (2014), 67% (2016), and 65% (2013). Grant Thornton did a horrible job on 65% of its audits in 2012, and the only Big 4 firm to have an audit deficiency rate of 50% or higher is KPMG, which did it not once but twice.
Among the batch of 2019 PCAOB inspection reports that we’ve written about over the past couple of weeks, BDO’s performance was the worst, failing 42% of its audits inspected. But Crowe and Marcum both out-badded BDO, each having a failure rate of 50%.
In its 2018 inspection report, Crowe nailed 13 of the 14 audits reviewed by the PCAOB during the 2017 inspection cycle, for a deficiency rate of only 7%. But there was some big-time regression as shown in the firm’s 2019 report card:
Five of the seven audits that weren’t up to snuff had mistakes in both financial statement and internal control over financial reporting audits, while the other two had deficiencies in just financial statement audits.
What part of ICFR audits gave Crowe auditors the biggest fits? The thing that gives most public accounting firm auditors the biggest fits: failing to perform sufficient testing of the design and/or operating effectiveness of controls selected for testing. Here are some other areas that befuddled Crowe auditors:Four of the audits with mistakes were for issuers in the financials sector, while two were in sectors unidentified by the PCAOB and one was in industrials.
In a response to the PCAOB’s findings, Crowe said it’ll do better next time:
We have carefully considered the matters identified in Part I.A and I.B of the Report and have taken actions to address the matters in accordance with PCAOB standards and our policies. These actions include performing additional procedures when appropriate and including additional documentation in our files to more completely describe and support our procedures and conclusions.
Crowe LLP is committed to performing high quality audits, and we have designed our quality control and monitoring systems to drive continuous improvement.
You can scroll through Crowe’s report here:
After two PCAOB inspection reports in a row with deficiency rates at 30%, the 2018 inspection cycle was a real humdinger for auditors in the House of Weiner:
And as you can see in the most common deficiencies description under the pie charts and in this chart below, Marcum auditors wanted nothing to do with testing controls, accuracy of data, or to identify risk, among other things:
PCAOB inspectors dinged three Marcum audits for issuers in sectors that were unidentified. But among the sectors that were identified, two audits were for issuers in IT and one was in health care.
Here’s Marcum’s less-than-stellar inspection report: