In a hard-hitting report, the Public Company Accounting Oversight Board (PCAOB) said that the deficiencies were of such significance that the inspectors felt that Deloitte Statautoriseret Revisionpartnerselskab (DSR) had not obtained sufficient appropriate audit evidence to fulfil the objectives of its role.
In the first case, where the firm had issued an audit opinion on a US-listed client, the inspectors found that the firm had failed to perform sufficient procedures to test the occurrence and allocation of revenue.
This meant that the auditor had issued an opinion “without satisfying its fundamental obligation to obtain reasonable assurance” that the financial statements did not contain any material misstatement.
“Whether or not associated with a disclosed financial reporting misstatement, an auditor’s failure to obtain the reasonable assurance that the auditor is required to obtain is a serious matter,” the report said.
“It is a failure to accomplish the essential purpose of the audit, and it means that, based on the audit work performed, the audit opinion should not have been issued.”
The inspectors found a number of deficiencies in a second audit on which Deloitte carried out audit work but not as principal auditor.
One of these deficiencies was highlighted in the report because once again the inspectors found it so significant that they questioned whether the firm had met the purposes of the audit.
It similarly related to revenue, although this time round, it was the firm’s failure to perform sufficient procedures to test the allocation of revenue that was exposed.
In his response to the inspectors’ findings, DSR’s reputation and risk leader Jan Bo Hansen said that the firm had taken action to remedy the failures. “Executing high quality audits is our number one priority,” he stressed.
“We are confident that the investments we have made and are continuing to make in our audit processes, policies and quality controls are resulting in significant enhancements to our audit quality.”
The inspectors looked at portions of one of two audits that the firm carries out on companies listed in the US, and portions of two of eight audit engagements involving US-listed companies but where the firm was not the principal auditor.
The PCAOB inspection was carried out in April 2016.