The PCAOB just released reports on its inspection of nine CPA firms. The only reports previously released were of limited inspections of the Big Four. Two of these nine firms received reports that were very critical.
With regard to a six-partner Birmingham, Ala. firm that had one public company client, the PCAOB identified three specific audit deficiencies. They were failures to (1) adequately test a self-insurance reserve, (2) document the firm's understanding of controls or test data from the service organization used by the audit client in recording the self-insurance reserve, and (3) analyze the impact of recording prior year adjustments in the current year's financial statements. As a result of the inspection, the public company client restated its financial statements
The second report was for a San Antonio sole practitioner with 17 public company clients. The report states "The deficiencies identified in four of the audits reviewed were of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the issuers' financial statements." Eleven specific deficiencies were described including pervasive documentation deficiencies in four of the audits reviewed, failure to test the fair value of securities issued in several transactions, and failure to evaluate the existence of contingent liabilities. Here too, as a result of the inspection, a client restated its financial statements.
All of these nine reports are public records and they appear at www.pcaobus.org/inspections/index.asp. Also on the Internet are news items on these reports. Everyone can readily see this information including the firms' competitors, who can by a simple search find which companies use those firms as auditors. They can also go to the Web site of the auditor to find more about the firm.
You can expect some of those competitors, supplied with this ammunition, to then go after all the audit clients of those firms where the PCAOB indicated its inspection found audit deficiencies.
Whether you call it the Age of Information or the Age of Transparency doesn't matter, existing and possible clients as well as competitors using the Internet, have instantaneous, no-cost access to vast amounts of information that was never available before with such ease. I can't even begin to imagine the possibilities and ramifications as more Internet experience and expertise is gained.
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