Breaking news: Cohen & Company made a mistake on one of its audits inspected by the PCAOB. Big deal, you’re probably thinking, audit firms screw up all the time—some more than others. (We’re looking at you, BDO USA.) But Cohen & Company had perfect auditing report cards from the PCAOB for 2018, 2019, and 2020. No deficiencies were found in its 26 total audits inspected in those three years.
But that three-year streak of perfection came to an end, according to its recently released 2021 PCAOB inspection report. The firm messed up on one of its nine audits inspected, and it pertained to the financial statement audit only.
So that’s one mistake in the last 35 audits inspected, for a deficiency rate of 2.8%. If you include the last time Cohen & Company auditors screwed up an audit, which was in 2017, that’s two mistakes in the last 43 audits inspected, for a deficiency rate of 4.6%.
As the PCAOB noted at the bottom of the above graphic, Cohen & Company didn’t sufficiently evaluate significant assumptions that the issuer used in developing an estimate. The issuer in question is a registered management investment company in the financials sector with net assets under $1 billion. The PCAOB said:
The issuer held certain investments that were categorized as level 3 within the fair value hierarchy as set forth in FASB ASC Topic 820, Fair Value Measurement. The firm’s approach for substantively testing the valuation of these investments was to develop independent estimates. The firm did not evaluate the relevance of the pricing information and the appropriateness of another input the firm used in developing its fair value estimates of these investments.
It’s important to note that all nine of Cohen & Company’s audits inspected by the PCAOB during its most recent inspection cycle were financial statement audits only. No integrated audits of financial statements and internal control over financial reporting (ICFR) were reviewed. Compare that with, say, PwC, which during its last inspection had 47 integrated audits of financial statements and ICFR reviewed and nine more that were financial statement audits only. PwC has only made three mistakes in its last 108 audits inspected, for a deficiency rate of 2.8%.
We know Cohen & Company, the 51st largest accounting firm in the U.S. by revenue, isn’t on the same playing field as PwC, the second largest firm in the U.S. and in the world. But excellence—no matter how big or small—should be celebrated, especially during this time of dour audit quality. You can peruse Cohen & Company’s 2021 PCAOB inspection report below.