Yesterday, the regulatory love child of Paul Sarbanes and Michael Oxley, the PCAOB, issued its 2010 inspection report for Deloitte. Deloitte was the third Big 4 firm to have their report issued this year with PwC and KPMG being issued just before Thanksgiving. While the reports for both PwC and KPMG were of the "we're not mad, just disappointed" quality – deficiences were found in 37% of PwC inspected audits, 22% of KPMG's – Deloitte has taken a strong lead for shoddy audit performance in 2010. Michael Rapoport from the Journal reports:
The 26 deficient audits found were out of 58 Deloitte audits and partial audits reviewed by PCAOB inspectors. The inspectors found that, in various audits, Deloitte didn't do enough testing on issues like inventory, revenue recognition, goodwill impairment and fair value, among other areas. In one case, follow-up between Deloitte and the audit client led to a change in the client's accounting, according to the report.
So for you those not so good with the numbers, that makes for deficiencies found in 45% of the audits inspected. Now, with this number of deficiencies, some in the business would describe this as "unacceptable" or "shameful" or even "sucky" and they would be right. However, this probably did not come as a surprise to Deloitte. Francine McKenna reported last month that an internal training document from Deloitte indicated:
[T]he firm expects the worst when the inspection reports for their 2009, 2010, and 2011 audits are published by the PCAOB.
So audit leaders at Deloitte probably aren't sobbing in a bathroom stall over this. And if you couple yesterday's report with the PCAOB's release of Part II of Deloitte's 2008 inspection report (the first ever for a Big 4 firm), the firm's underachievement doesn't make for shocking news. However, if anyone out there wants to throw a measuring stick on which Big 4 firm does the "best" audits (the firms are competitive after all), then it's pretty clear that Deloitte is not winning the gold and probably won't be even be on the medal stand. Yes, we're still awaiting the report for Ernst & Young (who is more than capable of blowing audits) but topping a 45% deficiency rate seems unlikely at this point.