In Footnotes last Friday, we highlighted a recent Accounting Today article about PwC finally taking audit quality seriously what measures PwC is taking to improve audit quality. In the article, Wes Bricker, PwC’s U.S. assurance leader and former SEC chief accountant, dropped a bomb—a Bricker bomb, if you will—about the most recent PCAOB inspections cycle:
“Quality has been our first priority. That is reflected in the results. We’ve made significant progress on improving our inspection results. The PCAOB inspection cycle having recently been completed, and our own internal inspection cycle also having been concluded, I feel really good about the progress we’ve made. Only one engagement of the 52 that were subject to inspection being included in part 1.A, that reflects a number of steps we’re taking to enhance our assurance work. We’ve seen a lot more consistency and execution across our entire portfolio. It really reflects the positive investments we’ve made and the leadership of our people.”
If what Bricker predicted ends up being true, once the PCAOB releases its 2020 PwC inspection report, a 2% audit deficiency rate would undoubtedly be the lowest among the Big 4 firms ever.
But PwC didn’t break any audit quality records in its 2019 PCAOB inspection report, which was released on Tuesday. In fact, PwC’s audit failure rate in the 2019 report (for audits inspected in 2018) got worse:
So for those scoring at home, that’s a failure rate of 30%, which is higher than the 25% audit deficiency rate in PwC’s 2018 report and 24% in 2017:
The 30% deficiency rate is the firm’s worst since 2013:
The things that perplexed PwC auditors the most in their audits of financial statements, as identified in the report, were: not performing sufficient testing related to an account or significant portion of an account or to address an identified risk; not performing substantive procedures to obtain sufficient evidence as a result of overreliance on controls (due to deficiencies in testing controls); and failing to evaluate significant assumptions or data that the issuer used in developing an estimate.
On the internal control over financial reporting side, PwC auditors struggled with: not identifying and testing any controls related to a significant account or relevant assertion; failing to perform sufficient testing of the design and/or operating effectiveness of controls selected for testing; and failing to identify and/or sufficiently test controls over the accuracy and completeness of data or reports that the issuer used in the operation of controls.
You can read the entire 2019 inspection report here:
PwC reports improvement in audit quality [Accounting Today]
Related articles:
PwC’s Latest PCAOB Inspection Report Is Fairly Unspectacular
PwC’s Latest PCAOB Inspection Report Is Fairly Unspectacular, Part II
Very easy for the PCAOB to come in after the facts and spend a couple of months reviewing what the Audit Firm did and finding a deficiency that is insufficient to cause a restatement. All the time in the world, when the Audit Firm is under intense pressure to meet a statutory deadline.