Big Four fail in one in five audits

The world’s four biggest accounting firms have been exposed for botching at least 20% of their audits following an inspection by the Public Company Accounting Oversight Board (PCAOB).

In the most recent annual inspections of the Big Four, inspectors
discovered Deloitte botched 20% of audits examined, PricewaterhouseCoopers were
substandard in 23.6% of cases, Ernst in 27.3%, and KPMG was found inadequate in
half of all cases examined.

According to a recent investigation published by the Project on Government Oversight (POGO), inspectors at the PCAOB found many of the sample audits performed by the US arms of the Big Four were so bad, the accounting firms had no business issuing opinions based on those audits.

However, according to POGO, these alleged violations rarely lead to the oversight board imposing any penalties, with only 18 enforcement cases being sanctioned against the Big Four since the PCAOB was established 17 years ago.

According to the PCAOB, when inspections find an audit was inadequate it does not necessarily mean the audit firm overlooked any problems at the company. For example, it does not mean the company reported erroneous financial results or engaged in accounting fraud, but rather such problems could have gone undetected.

In response to inquiries from POGO, three of the US Big Four offered no
comment on their inspection results.

The fourth, Deloitte, stated: “Deloitte is proud of the high quality
audits we perform in service to the capital markets, and we continuously look
for ways to improve and enhance the quality and value of our work.

“Our continued positive trajectory of regulatory inspection results
reflects the large investments we are making to leverage innovative
technologies and enhance the skillsets of our talent to prepare them for a
digitally driven future.”

Though KPMG declined to comment, it sent POGO a report it issued in
January 2019 describing how it has been aiming to do better - including,
“embarking on our journey to enhanced audit quality.”

“We are seeing progress as a result of the changes we have made and expect our PCAOB inspection findings to show improvement for the 2018 inspection year,” KPMG said in the report. “We recognise, however, that there is still progress to be made in our audit quality efforts and that our quality efforts will require constant vigilance.”