PracticeAuditPwC and E&Y slammed over audit work

PwC and E&Y slammed over audit work

Big Four firms criticised over deficiencies in audit process by US watchdog

The US Public Company Accounting Oversight Board has slammed the audit work
of both PricewaterhouseCoopers and Ernst & Young in its latest inspection
reports.

The accounting watchdog, after reviewing a sample of audits from both firms
said it had found ‘deficiencies’ in the work of both and in some cases ‘errors
that appeared likely to be material to the issuer’s financial statements’.

Both firm’s deficiencies also included ‘failures by the firm to perform, or
to perform sufficiently, certain necessary audit procedures’.

‘In some cases, the deficiencies were of such significance that it appeared
to the inspection team that the firm had not, at the time it issued its audit
report, obtained sufficient competent evidential matter to support its opinion
on the issuer’s financial statements,’ both reports continued.

In its report on PwC, the PCAOB found nine cases of deficiencies in auditing
receivables and 10 cases of deficiencies in testing of internal controls relied
upon by the firm. Ernst & Young’s report identified two cases of failure to
identify departure from GAAP and four of deficiencies in testing of the
allowance for loan losses.

In its response to the criticism, PwC said that for about two-thirds of the
findings: ‘the work performed was adequate in the context of the audit as a
whole and therefore such findings represent good faith differences on the
application of professional judgement’.

For its part, E&Y acknowledged that in some of the audits described ‘the
documentation of our audit procedures and evidence should have been improved’
and that it had ‘issued updated accounting and auditing guidance’ in those
areas.

All four of the largest accountancy firms have now been hit by criticism with
Deloitte and KPMG reports also showing similar deficiencies earlier in the year.

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