On October 23, the PCAOB also released – simultaneously with the KPMG report -- the public portion (Part I) of its report on the 2013 Inspection of McGladrey LLP.
The 2013 McGladrey inspection (which involved field work at nine of the firm’s 74 U.S. offices) included reviews of 13 public company audit engagements. The inspection report characterizes four of those engagements (31 percent) as situations in which it appeared to the Board’s inspection staff that McGladrey “had not obtained sufficient appropriate audit evidence to support its audit opinion.” In McGladrey’s 2012 inspection report, the Board found significant audit deficiencies in 44 percent of the engagements inspected.
Three of the four audits discussed in Part I of the report include only deficiencies with respect to the financial statement audit, while the fourth includes only a deficiency in the ICFR audit. However, it cannot be determined from the inspection report which of the inspected engagements involved issuers that were subject to the ICFR audit requirement. Therefore, it is difficult to draw conclusions from the fact that there was only one engagement with an ICFR audit deficiency.
Excluding broadly applicable aspects of standards that relate to auditing generally, the auditing standards cited as the basis for deficiencies are listed below.
Survey Indicates that Audit Fees are Continuing to Rise
According to the Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International, audit fees rose in 2013 for public companies, private companies, and non-profit organizations. In its October 2 press release announcing the results of the annual Audit Fee Survey, FERF said that public company audit fees “were being particularly impacted by recent Public Company Accounting Oversight Board (PCAOB) inspections.” FERF conducted the survey, which included “nearly 400” respondents, in partnership with Audit Analytics.
According to the press release, the 2013 survey findings included the following –
Public companies paid on average $7.1 million in audit fees, an increase of 4.5 percent over 2012. The average number of audit hours required for the public companies represented by survey respondents was 17,525.
PCAOB Auditing Standard Number of Engagements in Which
Standard Was a Deficiency
AS No. 13, The Auditor’s Response
to the Risks of Material Misstatement 3
AS No. 15, Audit Evidence 2
AU Section 342, Auditing Accounting Estimates 2
AS No. 5, An Audit of Internal Control Over Financial Reporting
That is Integrated with An Audit of the Financial Statements 1
AS No. 12, Identifying and Assessing
Risks of Material Misstatement 1
AS No. 14, Evaluating Audit Results 1
AU Section 350, Audit Sampling
In a letter appended to the report, McGladrey states, as it did in the prior year’s response, that it is “committed to using the inspection comments and observations to improve our system of quality controls” and that the firm has “a long history of audit quality founded on our commitment to integrity, objectivity and excellence.” McGladrey also states that it evaluated the matters in Part I and has taken appropriate actions to address them.
Comment: As with all inspection reports, audit committees of companies that are audited by McGladrey 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.