The inspectors found nothing untoward in the portions of the one US-listed company audit carried out by PwC that was selected for review. They also approved the Swiss firm’s work on two other issuer audit engagements in which it had played a role but was not the principal auditor.
They came to the same conclusion about Crowe’s audit of a US-listed client in Puerto Rico.
However, RSM’s US firm came in for strong criticism after the inspection team spent time going through 15 issuer audit files at its national office in Chicago and at five of its 91 US offices.
The inspectors found deficiencies in the performance of the work they reviewed. “In 11 audits, certain of the deficiencies identified were of such significance that it appeared to the inspection team that the firm, at the time it issued its audit report, had not obtained sufficient appropriate audit evidence to support its opinion that the financial statements were presented fairly, in all material respects, in conformity with the applicable financial reporting framework and/or its opinion about whether the issuer had maintained, in all material respects, effective internal control over financial reporting (ICFR),” their report says.
It goes on to say that of those 11 audits, six had deficiencies relating to testing controls for purposes of the ICFR opinion, and nine had deficiencies in the performance of substantive testing performed for purposes of the opinion on the financial statements.
The most frequently identified failures related to: sufficiently testing the design and/or operating effectiveness of controls selected for testing (six audits); sufficiently testing significant assumptions or data that the issuer used in developing an estimate (six audits); sufficiently testing controls over or sufficiently testing the accuracy and completeness of issuer-produced data or reports (six audits); and designing substantive procedures, including sample sizes (five audits).
Revenue, including accounts receivable, deferred revenue and allowances (five audits), and loans, including the allowance for loan losses (four audits), were the areas where the most deficiencies were found.
In response, the firm said it has taken action to improve the quality of its audit work and system of quality controls. “We have a long history of audit quality founded on our commitment to integrity, objectivity and excellence,” it added.
The inspectors at EY’s Brazilian firm discovered a number of deficiencies in the three pieces of work it reviewed but only one of major significance. In that case, the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatements and/or the issuer maintained effective ICFR.
The failure involved not performing enough procedures to identify and test the design and operating effectiveness of controls over the occurrence and allocation of revenue.
As far as EY Canada was concerned, the inspectors unearthed three serious deficiencies in the four pieces of audit work they reviewed.
In the first case, there were issues over identifying and testing the design and operating effectiveness of controls over the valuation of certain investment securities, while in the second there were problems with testing the controls over the occurrence of revenue and the existence of accounts receivable.
The third case involved an audit which the firm had worked on but was not the principal auditor. The inspectors found that it had failed to perform sufficient procedures to test the design and operating effectiveness of controls over the valuation of asset retirement obligations.