In the latest report on the Big Four firm, which audits 12 companies listed in the US and works on 114 others where it is not the lead auditor, the inspectors found a number of deficiencies in the firm’s work.
These included one which was so significant that the inspectors felt the firm, when it issued its audit report, had not gathered “sufficient appropriate audit evidence” to back up its opinion that the financial statements were prepared fairly, in all material respects, in accordance with the applicable financial reporting framework.
“In other words,” they said, “the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement.”
The serious deficiency was found in one of two issuer audits that the PCAOB inspected and related to the firm’s failure to perform sufficient procedures to test the occurrence, completeness and allocation of revenue and the existence of receivables.
This was in breach of the PCAOB’s auditing standard, AS 2305, Substantive Analytical Procedures.
In response, Deloitte said that it had evaluated the issues raised by the regulator and taken action to repair the omission.
In a letter to Helen Munter, director of the PCAOB’s division of registration and inspections, Deloitte’s managing partner of audit and risk advisory Stephen Griggs stressed that carrying out high quality audits was the firm’s “number one priority”.
“We are confident that the investment 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,” he added.
Firms that audit companies listed on US stock exchanges are required to undergo PCAOB inspection under the Sarbanes-Oxley Act of 2002.