Nearly a decade after the accounting world was turned on its ear by the Enron and Worldcom scandals, it appears there are still worrisome issues with audits conducted by the industry’s biggest firms. The Public Company Accounting Oversight Board (“PCAOB”)—the body created in the wake of the earlier scandals to oversee the accounting agency—issued recent reports detailing its study of audits performed by Big Four firms PriceWaterhouseCoopers (“PWC”) and KPMG. Those reports found a troubling rate of audit deficiencies at both firms; detailing flaws in 28 of 75 audits by PWC and 12 of 54 audits by KPMG. In some cases, the flaws went to the heart of the audit. The reports note that PWC, in some cases, “failed to obtain sufficient appropriate audit evidence to support its audit opinion,” and that KPMG sometimes failed “to identify, or to address appropriately, financial statement misstatements, including failures to comply with disclosure requirements.” The PCAOB study, which examined audits from 2010, also found that the deficiency rates for both firms were higher than in previous years.
The PCAOB’s findings are good reminder that even audits conducted by the largest accounting firms are susceptible to significant error. It is clear that the auditing industry still has a way to go before investors can rely on any accounting firm’s stamp of approval.
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