The Public Company Accounting Oversight Board has released its latest inspection report on Ernst & Young after the New York-based firm failed to address certain quality control issues to the satisfaction of the PCAOB.

The 2012 inspection of EY included reviews of aspects of 51 audits performed by the firm and reviews of the firm's audit work on one other issuer audit engagement in which the firm played a role but was not the principal auditor. The PCAOB said its inspection team identified matters that it considered to be deficiencies in the performance of the work it reviewed. Two of the deficiencies relate to auditing aspects of an issuer's financial statements that the issuer restated or announced an intention to restate after the primary inspection procedures.

The inspection team considered certain of the deficiencies that it observed to be audit failures. Specifically, certain of the identified deficiencies were of such significance that it appeared that the firm, at the time it issued its audit report, had failed to obtain sufficient appropriate audit evidence to support its audit opinion on the financial statements and/or on the effectiveness of internal control over financial reporting, the PCAOB noted. The PCAOB described the audit deficiencies that reached this level of significance for 25 of EY’s audit clients.

The findings come on the heels of an expanded inspection report released by the PCAOB earlier this year in which the board released previously nonpublic portions on its 2009 inspections, saying that EY had failed to address them in a timely manner to the board’s satisfaction (see PCAOB Exposes Further Problems with Ernst & Young Audits).

“The PCAOB inspection process is important,” said Steve Howe, Americas managing partner at Ernst & Young LLP, in a statement emailed by the firm to Accounting Today, in response to the latest report. “We respect and benefit from this process as it aids us in continuously improving the quality of our work and fulfilling our responsibility to investors and other stakeholders.”

EY pointed out that most of the report’s findings related to internal controls over financial reporting, or ICFR. In recent years, ICFR inspection findings have been sufficiently prevalent across the profession to prompt the PCAOB to issue a December 2012 public report outlining their concerns and findings in the area, EY pointed out. 

“Our firm has been taking substantial and specific steps to continue to improve ICFR auditing,” said the firm. “These efforts continue and include additional guidance related to the evaluation of the design and testing of controls, new or revised templates and audit forms, mandatory training for all audit professionals, enhanced quality reviews, and reinforcing the importance of this aspect of our work.”