PracticeAuditBDO Seidman audits criticised by PCAOB

BDO Seidman audits criticised by PCAOB

'The Firm's procedures were limited to inquiry of management and did not include obtaining corroboration of management's explanations' - PCAOB

BDO Seidman’s audits have been slammed by the US audit
watchdog for a lack of audit documentation, inadequate auditing of goodwill
impairment.

In a report by the Public Company Accounting Oversight Board, the firm was
criticised over the weaknesses in its audits.

According to the report, in one company’s business unit – which had had
experienced historical operating losses and the loss of key customers – there
was no evidence in the audit documentation, and no persuasive other evidence,
that the firm had tested the issuer’s revenue forecasts (including assumed new
business) or evaluated the revenue multiple used to value the unit. For another
business unit, there was no evidence in the audit documentation, and no
persuasive other evidence, that the Firm had tested the issuer’s revenue growth
assumptions.

In a separate audit, the firm failed to adequately audit the valuation of the
inventory of the company, which was a retailer.

‘The issuer performed a reasonableness test of the valuation of its lending
inventory by computing an important ratio (historical cost to retail value)
using aggregated company-wide data, and the Firm used that reasonableness test
as its primary substantive test of inventory valuation. However, the Firm did
not investigate a significant difference between the ratio computed using
aggregate data and the ratio computed using store-level data. In addition, where
significant unexpected differences between the ratio computed using aggregate
data and the ratio for individual stores were identified, the Firm’s procedures
were limited to inquiry of management and did not include obtaining
corroboration of management’s explanations,’ the report stated.

In a written response the firm said it recongised the importance and value of
the inspection process and cooperated with the inspection team to the fullest
extent.

‘We did this with the understanding that, while there were, at times, what we
considered to be reasonable differing views between the inspection team and the
firm as to audit approaches, accounting decisions, or materiality, as would be
expected based on the judgmental nature of such matters, consideration of
different views is a useful means of promoting best practices.

‘The draft Report does appropriately recognize that the inspection process is
designed to identify deficiencies and that, based on the limited selection of
audits inspected, findings are not necessarily reflective of a firm’s practice
in general. As such, the format of the draft Report produced by this process
does not lend itself to a portrayal of the overall high quality of our audit
practice. Further, the design of the draft Report provides condensed information
regarding the findings, so there is no description of the procedures that were
performed in the applicable areas at the time of the audits or other information
that may provide additional context for understanding the nature or magnitude of
the findings,’ the firm stated.

Further reading:

Read
the report in full

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