The Public Company Accounting Oversight Board issued the latest inspection report of Deloitte & Touche, noting problems with nine audits performed by the firm last year.

With two unidentified clients, the PCAOB said that Deloitte failed to identify a departure from generally accepted accounting principles that it should have addressed before issuing its audit report. In both cases, the clients incorrectly concluded that interest rate swaps qualified for hedge accounting using the short-cut method in Statement of Financial Accounting Standards No. 133.

One of those clients also had income tax net operating loss carryforwards for which there was no valuation allowance, and Deloitte failed to evaluate the reasonableness of some significant assumptions made by the client in its forecast of taxable income during the carryforward period. With another client, Deloitte failed to perform sufficient procedures to assess the valuation of certain of the issuer's privately issued mortgage-backed security holdings.

In response, Deloitte said it would consider each of the PCAOB's comments. However, the firm also stressed the use of professional judgment.

"We believe that the observations included in the draft report reflect the fact that professional judgments are involved both in auditing an issuer's financial statements as well as in subsequently inspecting any such audits," said the firm in a letter included with the report. "Professional judgments of reasonable and highly competent people may differ as to the nature and extent of necessary auditing procedures, conclusions reached and required documentation."

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