PCAOB Audits Audit Reports
A recently published PCAOB report on smaller members (firms with less than 100 publicly traded
audit clients) found that the significant error was down in 2011 from the middle of the previous decade; but only marginally down from more recent years. Specifically, 44% of audit firms had at least one significant audit deficiency (hereafter SAD) during the 2007-2010 period (hereafter 07-10 period) vs. 61% with a SAD during 2004-2006 (or the 04-06 period). Additionally, 28% of audits had SADs in 07-10 period vs. 36% in the 04-06 period and on second round audits 36% had SADs in the 07-10 period vs. 55% in the 04-06 period. While the reduced rate was encouraging, the presence of SADs in over a quarter of audits was unsettling according to PCAOB member Jeanette Franzel. Additionally, 20 firms with SADs had not submitted a remediation plan to the PCAOB.
With the wide disparity of firm sizes (one wonders how the smallest firms cited could even qualify to audit an SEC client) it is somewhat difficult to know whether to be encouraged or discouraged by these results. One exception--the number of firms avoiding the remediation plan is clearly too high.