Wednesday, October 19, 2011
Earlier this week the PCAOB released a previously non-public report on Deloitte criticizing inadequate quality controls for its audits. According to the report, the auditing firm placed too much reliance on the management of the companies that they audited. The report was written in 2008 and covered audits conducted in 2007. According to its website,
PCAOB prepares a report on each inspection it conducts of a registered public accounting firm, and a portion of each report is made publicly available when issued. Many reports contain nonpublic content, which may include, among other things, discussion of potential defects in a firm's system of quality control. Any such quality control criticisms remain nonpublic if the firm addresses them to the Board's satisfaction within 12 months after the report date. If a firm fails to satisfactorily address any of the quality control criticisms within 12 months, the portion of the report discussing the particular criticism(s) is made publicly available.
Specifically with respect to the Deloitte report, PCAOB stated:
The Public Company Accounting Oversight Board, in anticipation of questions about the publication of previously nonpublic portions of its May 19, 2008 inspection report on Deloitte & Touche LLP, issued the following statement today:
"The quality control remediation process is central to the Board's efforts to cause firms to improve the quality of their audits and thereby better protect investors. The Board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report. Particularly with the largest firms, which are inspected annually, the Board devotes considerable time and resources to critically evaluating whether the firm did in fact make sufficient progress in that period. The Board can and does make the relevant criticisms public when a firm has failed to do so."