PCAOB Issues Report Identifying Problems with Internal Controls Auditing

The PCAOB issued a report identifying the issues at 8 of the prominent accounting organizations with the internal controls auditing over finance related reporting.

The report points out whether the firms comply with the Audit Standard no. 5 or not. In as many as forty six of the three hundred nine engagements that were inspected in the year 2010, or fifteen per cent, the organizations could not succeed in obtaining sufficient auditing proof for supporting their ICFR auditing opinions owing to some or the other deficiencies in auditing of the financial statements of 2009. In around thirty two of those very engagements, 2 or more than two deficiencies were found.

In thirty nine engagements, the organizations could not succeed in obtaining sufficient auditing proof for supporting their financial statements related auditing opinions. This included around thirteen per cent of the three hundred and nine engagements that were inspected. The organizations included in the report are Crowe Horwath, BDO, Grant Thorton, McGladrey, PwC, Ernst & Young, Deloitte and KPMG.

The inadequacies that were considered in the report included failures on behalf of the auditor in identifying and testing controls, which addresses the risk attached with material misstatement, testing the operating effectiveness and design of management review controls sufficiently, obtaining enough proof for testing controls from any date to the entity’s year ending date, sufficiently performing the processes with regard to the utilization of other’s work and properly evaluating identified control inadequacies and considering their impact on both the auditing of financial statement and internal controlling.

In the inspection, which was carried out in 2011, the figures arose from fifteen to twenty-two per cent of engagements where companies could not succeed in obtaining enough auditing proof in support of their ICFR auditing options. The Public Committee Accounting and Oversight Board however clarified, that all the inspection related reports that were created in 2011 were not finalized. These inadequacies were more or less similar to the ones identified in the year 2010. However, the inadequacies figure increased during the 2010 auditing of financial statements.

Hay Hanson, PCAOB board member stated that if a company hasn’t done sufficient work for supporting its suggestions/opinions on internal controlling, it is also clear that it won’t be able to support its financial statement auditing.