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There are still “unacceptable” numbers of flaws in the work carried out by the largest US audit firms, the industry’s regulator said on Thursday, after its inspections showed a surging rate of deficiencies at mid-tier firms BDO and Grant Thornton in particular.
Among the Big Four, the deficiency rate — which leapt higher after the pandemic — stabilised in 2023, the Public Company Accounting Oversight Board said.
At BDO, 86 per cent of audits inspected by the PCAOB were found to be deficient, meaning that the firm had failed to collect enough evidence to support at least part of its audit conclusion. At Grant Thornton, a little over half of audits inspected contained flaws.
“These inspection results point to some small signs of movement in the right direction,” said PCAOB chair Erica Williams. “Still, overall deficiency rates are unacceptable, and firms must do better. Now is the time to double down on efforts to improve and deliver the audit quality investors deserve.”
EY, which had the highest deficiency rate among the Big Four for the second year in a row, last year said it would roll out new technology and restructure its audit business to try to improve its results.
BDO said last month that it would bring additional outsiders on to a board monitoring its own efforts to improve quality.
“Over the past two years, we have made numerous investments to strengthen the quality of our audits,” BDO said on Thursday, adding that it had centralised control of audit standards and “reimagined” staff training.
Grant Thornton said it was committed to enhancing quality procedures.
The PCAOB has the power to inspect the audit of any company listed in the US and conducted checks of 287 audits carried out by the six largest US firms last year.
On Thursday, it also published reports on another eight smaller firms with more than 100 US-listed clients, and presented an overview of other inspections yet to be finalised. In all, it inspected audits by more than 200 accounting firms last year, finding deficiencies in 46 per cent of audits, up from 40 per cent in 2022.
In a report on its inspection findings, the PCAOB said: “While there is no single reason for the aggregate increase in deficiencies, it’s clear the Covid pandemic influenced audit quality. Broadly speaking, audit firms with strong quality control systems and centralised structures and processes in place before the start of the pandemic seem to have had a better chance of weathering the crisis and more quickly righting their ships.”
The agency said actions such as requiring staff to come to the office for part of the week and increasing training for younger staff have helped, “but more needs to be done”.
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