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Univ. of Toledo College of Law

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Monday, December 10, 2012

PCAOB Concerned About Deficiencies in Audits of Internal Controls over Financial Reporting

The Public Company Accounting Oversight Board today released a report summarizing inspection observations related to deficiencies in registered public accounting firms' audits of the internal control over financial reporting (ICFR) at public companies.  The report, "Observations from 2010 Inspections of Domestic Annually Inspected Firms Regarding Deficiencies in Audits of Internal Control over Financial Reporting," provides information about the nature and frequency of deficiencies in firms' audits of internal control over financial reporting detected during the PCAOB's 2010 inspections of eight domestic registered firms that have been inspected every year since the PCAOB inspection program began.

The report is based on PCAOB inspections that examined portions of approximately 300 such audits. It describes the most pervasive deficiencies identified in those audits and also includes information on the potential root causes of the deficiencies.

According to the Executive Summary:

The Board is concerned about the number and significance of deficiencies identified in firms' audits of internal control during the 2010 inspections, which generally involved reviews of the integrated audits of financial statements and internal control ("integrated audits") for issuers' fiscal years ending in 2009. This report describes the most pervasive deficiencies identified in firms' auditing of internal control during the 2010 inspections, and also includes information on the potential root causes of the deficiencies. Although not specifically described in this report, the Board is also concerned that the rate of these deficiencies increased during the Board's 2011 inspections. The Board emphasizes, however, that the findings described in this report should be considered against the broader background that, in many cases, the Inspections staff did not identify significant audit deficiencies in the portions of audits of internal control that were reviewed in 2010 and 2011, an encouraging fact that reflects well on the firms' ability to implement AS No. 5 appropriately when their engagement teams approach the issues properly.

The report is available at PCAOB's website.

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