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20 Sep 2019 11:41am

PCAOB slams three Big Four member firms over audits

Three Big Four member firms have been taken to task by US watchdog the Public Company Accounting Oversight Board (PCAOB) after falling foul of its audit rules

Inspectors from the regulator found significant deficiencies in a number of audit engagements carried out by KPMG Mexico, PwC Argentina and PwC Austria.

Where the firm was the principal auditor, the deficiencies led them to question whether at the time the firm issued its audit opinion, it had actually satisfied its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement and/or the audited company maintained effective internal controls over financial reporting (ICFR).

Where the firm had worked on an audit but was not the principal auditor, the deficiencies led the inspectors to wonder whether it had obtained sufficient appropriate audit evidence to fulfil the objectives of its role in the audit.

In the case of KPMG Cardenas Dosal (KPMG Mexico), the inspectors reviewed two issuer audits and the firm’s audit work on one other issuer audit engagement in which it played a role but was not the principal auditor. They found significant deficiencies in all three.

In one of the two issuer audit reviews , the firm had failed, in its audit of ICFR, to perform sufficient procedures to identify and test the design and operating effectiveness of controls over the occurrence and allocation of revenue and the existence and valuation of accounts receivable. In the other, it had failed to perform sufficient procedures to test the allocation of revenue.

In the third review, where KPMG Mexico was not the principal auditor, it was found to have failed (in connection with its role in an audit of ICFR) to perform sufficient procedures to identify and test controls that address certain risks related to the occurrence, completeness, and allocation of revenue and the existence and valuation of accounts receivable. In the financial statement audit, as a result of the unsupported level of reliance on controls, the firm failed to perform sufficient procedures to test the existence and valuation of accounts receivable.

The firm also failed to carry out enough procedures to test the occurrence, completeness, and allocation of certain other revenue, including the inadequate performance of substantive analytical procedures.

PwC Argentina came to grief in one of the two issuer audits that the PCAOB reviewed because it had failed, in its audit of ICFR, to perform sufficient procedures to identify and test the design and operating effectiveness of controls over the valuation of certain financial assets, and to evaluate the severity of identified control deficiencies relating to them.

It had also failed to perform sufficient procedures to test the existence of the financial assets and to identify and test the design and operating effectiveness of controls over the valuation and presentation and disclosure of investments.

The inspectors at PwC Austria reviewed work the firm had carried out on three issuer audit engagements in which it played a role but was not the principal auditor. One was found to be deficient because the firm had not performed sufficient procedures to test the occurrence of revenue and the valuation of inventory.

All three firms said that they had taken the PCAOB’s criticisms on board and had acted to rectify the deficiencies.

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