Of the 34 portions of listed companies’ audits that its inspectors reviewed, more than two fifths (41%) were found to be deficient. Of these, 14 had serious deficiencies.
These deficiencies were so significant, said the board, that the inspection team questioned whether the firm, at the time it issued its audit report, had obtained sufficient appropriate audit evidence to support its opinion that the financial statements were presented fairly and/or its opinion about the effectiveness of the company’s issuer internal control over financial reporting (ICFR).
“In other words in these audits, the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement and/or the issuer maintained effective ICFR.”
A spokesman for Grant Thornton in the US pointed out that the audits covered by the PCAOB inspection related to calendar year-end 2014 engagements. Since then the firm had made changes to address the problems in audit quality that the board had found.
“Quality is the foundation of all that we do. In recent years, we’ve taken a number of significant actions, and also invested in new resources, to ensure high quality audits,” he said.
“Our internal inspection results since 2015 indicate strong continued improvement in audit quality.”
The PCAOB team found deficiencies in nine audits relating to testing controls for purposes of the ICFR opinion, and deficiencies in all 14 audits relating to the substantive testing performed for purposes of the opinion on the financial statements.
Four audits included deficiencies in substantive testing caused by a reliance on controls that was excessive given the deficiencies in the testing of controls.
The most frequently identified audits deficiencies included: failure to sufficiently evaluate significant assumptions or test data that the issuer used in developing an estimate (seven audits); failure to perform sufficient testing related to an account or significant portion of an account or to address an identified risk (six audits); failure to sufficiently test controls over or sufficiently test the accuracy and completeness of data and/or reports (four audits); and failure to sufficiently test the design and/or operating effectiveness of controls that the firm selected for testing (four audits).
In a letter to the PCAOB in January, the firm said that it supported the board’s mission to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.
“The PCAOB inspection report and dialogue with the inspections staff is an integral component in focusing our efforts.
“Our firm continues to invest in resources so we can drive continuous quality improvement, as quality is the foundation of our audit practice and we consider it our highest priority.”