PCAOB rips more audit firms
The quality of audits emerged as a big issue in 2012, with the Public Company Accounting Board taking a somewhat activist posture on some issues.
It pushed hard to gain buy-in for term limits on audit firms, essentially doing away with the idea that audit firms can serve as permanent service providers to a specific company. It also pushed for various changes to financial statements. The board has suggested several changes that would require more information for investors in key areas as well as clarification of key terms and other measures, including a narrative-like discussion from the auditor that would be akin to the "Management Discussion and Analysis" (MD & A) section.
It's unclear if any of this will ever beyond the idea phase. Lots of issuers have voiced misgivings, and several politicians have signaled their intent to oppose mandatory term limits on audit firms. All this is playing out against a backdrop of increasingly shoddy audits. The PCAOB has previously rapped PwC and KPMG over the quality of their audits. Just recently, it rapped Deloitte & Touche, Ernst & Young, and Grant Thornton.
The most recent report says that in four cases, problematic issues discovered by inspectors led to restatements. This included two for Deloitte and one each for E&Y and Grant Thornton. While Deloitte showed an improvement in its failure rate in 2011, the failure rates rose for both E&Y and Grant Thornton.
Compliance Week notes the views of one PCAOB member who warned recently that the board is not seeing the improvement in audit quality that it expected to see after the 2010 reports. The board is summarizing its concerns in a report that will be due out soon.
If the audit industry wants to hold the line on new ideas aimed at improving audits, it needs to show that it is doing just fine with the status quo. So far, it has not made a strong case. -Jim