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The PCAOB Inspection Report of Grant Thornton Could Have Been Worse

The Board inspected 41 audits at 21 of Grant Thornton's 51 offices. Fifteen issuers were cited in the report that included various failures, primarily related to "obtain[ing] sufficient appropriate audit evidence to support its opinions on the financial statements and on the effectiveness of [internal controls over financial reporting]." There was everything from failure to adequately test IT general controls to sufficiently testing revenue to an entire section – I.A.13 – describing, "Deficiencies in Testing the Fair Value Measurements and Disclosures of Financial Instruments Without Readily Determinable Fair Values" that applied to Issuers H, I, M, N, and O. 

Then there was this little gem from Issuer J:
The Firm failed to perform sufficient procedures to test the existence of certain inventory. The Firm's procedures to test the existence of inventory that had been consigned to the issuer's customers consisted of testing the issuer's reconciliation  of that inventory to reports from the customers. This procedure, however, was insufficient, as the Firm failed to investigate an unreconciled difference that was approximately six times larger than the Firm's established level of materiality. Further, the Firm failed to consider whether the unreconciled difference described above indicated that the amount recorded for estimated consigned sales at year end may not be complete and accurate.  
GT kept their response cordial, stating, "We carefully considered each of the report findings for the Issuer audits described in Part I of the Report. Accordingly, we took all steps necessary to fulfil [Ed. note: this spelling is a tell that the author is CEO Stephen Chipman], our responsibilities under AU 390, Consideration of  Omitted Procedures after the Report Date and AU 561 Subsequent Discovery of fact existing at the Date of the Auditor's Report. The letter was signed by Chipman and National Managing Partner of Audit Services, R. Trent Gazzaway. 
Overall, compared to the likes of McGladrey and Deloitte, Grant Thornton did okay for itself. The number of issuers cited with failures was on par with the Board's inspection of PwC (~37%), but was not nearly as good [?] compared to KPMG and Ernst & Young who were both in the low 20s. 
So if you don't have anything better to do – my guess is you don't – take a long look at this latest report card from the PCAOB and feel free to point out any other items worth noting.

2012 Grant Thornton LLP

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