On December 3, the PCAOB released 37 inspection reports, including the 2013 reports on two large firms subject to the Board’s annual inspection requirement -- BDO USA and Crowe Horwath LLP. The PCAOB has now issued 2013 inspection reports on all of the eight firms with the largest public company practices, except Grant Thornton.

BDO

The Report on 2013 Inspection of BDO USA, LLP states that the BDO inspection involved field work at 15 of the firm’s approximately 35 U.S. offices (plus the firm’s national office) and included reviews of aspects of 23 public company audit engagements. The inspection report characterizes 15 of those engagements (65 percent) as situations in which it appeared to the Board’s inspection staff that BDO “had not obtained sufficient appropriate audit evidence to support its audit opinion.” In BDO’s 2012 inspection report, the Board found significant audit deficiencies in 55 percent of the engagements inspected.

As has been the case with many of the 2013 and 2012 inspection reports, the BDO report is heavily weighted toward deficiencies in audits of internal control over financial reporting (ICFR). Fourteen of the 15 audits discussed in Part I of the report include one or more ICFR deficiencies, while one includes only deficiencies with respect to the financial statement audit. (It cannot be determined from the inspection report whether or not that company was subject to the ICFR audit requirement.) Three engagements included only deficiencies related to the ICFR audit. Eleven of the 15 engagements in which deficiencies were identified involved deficiencies in both the financial statement and the ICFR audit. Auditing fair value measurements was the most frequently-cited substantive financial statement auditing topic.

Excluding broadly applicable aspects of standards that relate to auditing generally, the auditing standards cited as the basis for deficiencies in the BDO report are listed below.

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In a letter appended to the report, BDO states, as it did in the prior year’s response, that it “remain[s] committed to improving our audit performance and our underlying quality control systems."

Crowe Horwath

The PCAOB also released its Report on 2013 Inspection of Crowe Horwath LLP. The Crowe report states that the firm’s 2013 inspection involved field work at nine of the firm’s approximately 28 U.S. offices  (plus the firm’s national office) and included reviews of aspects of 13 public company audit engagements. The inspection report characterizes five of those engagements (38 percent) as situations in which it appeared to the Board’s inspection staff that Crowe “had not obtained sufficient appropriate audit evidence to support its audit opinion.” This reflects improvement over the prior year: In Crowe’s 2012 inspection report, the Board found significant audit deficiencies in 50 percent of the engagements inspected.

All five audits discussed in Part I of the report include deficiencies related to the financial statement audit. Two of those engagements included deficiencies related to both the financial statement and the ICFR audit. Three of the five audits include only deficiencies with respect to the financial statement audit, although it cannot be determined from the inspection report whether or not these companies were subject to the ICFR audit requirement.

Excluding broadly applicable aspects of standards that relate to auditing generally, the auditing standards cited as the basis for deficiencies in the Crowe report are listed below.

Click here to view table.

Comment: As with all inspection reports, audit committees of companies that are audited by BDO or Crowe should discuss the results of the firm’s most recent PCAOB inspection with their engagement partner. An agenda for an audit committee discussion of the auditor’s PCAOB inspection report is available from the undersigned.