After years and years of PCAOB inspections of the Big 4 in which the percentage of audits of public companies that weren’t up to snuff have been in the 30s, 40s, and even 50s, we finally had a respectable audit report card earlier this year when Deloitte nearly had a single-digit deficiency rate in its most recent 2019 inspection report.
Of the 58 audits PCAOB inspectors reviewed during the 2018 inspection cycle, Deloitte aced 52 of them, resulting in a failure rate of only 10.3%—the lowest in the past 10 years.
But right before the PCAOB released its batch of 2019 Big 4 inspection reports in early February, Accounting Today posted an article about what PwC is doing to improve the quality of its audits. Of note was this quote from Wes Bricker, PwC US’s head of audit (I mean Trust Solutions co-leader) and former SEC chief accountant:
“I’m thrilled with the progress that we’ve made, but I also know that the progress is not over,” PwC U.S. assurance leader Wes Bricker told Accounting Today. “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.”
You can’t blame us for being skeptical about Wes’s prognostication given that PwC auditors did poorly on 18 of the 60 audits inspected in 2018, for a failure rate of 30% in its 2019 report.
But a week or so ago, PwC published its 2021 audit quality report where it confidently doubled down on its prediction that it’ll only have one bad audit out of the 58 inspected when the PCAOB releases the firm’s 2020 inspection report (see upper left-hand corner of graphic below):
If that ends up being true, PwC will hold the record for the all-time lowest deficiency rate among the Big 4 at a measly 1.7% and possibly the only single-digit failure rate ever.
And in an accompanying video, Bricker said:
“[In the audit quality report] you’ll read about the results of our inspections. We presently anticipate only one out of 58 audits inspected to be included in Part 1a of our PCAOB 2020 inspection report. That reflects a significant decrease in the number of audits with identified deficiencies, which is a positive impact from the investments that we’ve made in audit quality because audit quality is at the core of our purpose to build trust in society to solve important problems.”
Do Big 4 firms lie all the time? YES! Especially when it comes to audit quality, always telling their clients and the PCAOB that “performing high-quality audits with independence, integrity, and skepticism is our No. 1 priority” and then they go out and blow 48% of the audits inspected by the audit cops. But given that PwC has included in interviews, in print, and in videos this new high bar in audit quality, we have no reason to believe Bricker and PwC are pulling these numbers out of thin air. Bricker has too good of a reputation in accounting circles to be lying about it.
We’ll keep you guys updated once the PCAOB releases PwC’s 2020 inspection report.