In a former life covering sports, I was once assigned to a late-season game between the New York Mets and the Chicago Cubs. It seemed back then that most every season for the Cubs was eerily similar to Groundhog Day, where a cynical weatherman played by Bill Murray is forced to relive the worst day of his life over and over.Entering that season, the Cubbies once again were optimistic - as were the weary faithful at Wrigley Field - that they could seriously contend for a pennant, as they had miraculously done just two years before. But the team finished with roughly 70 wins versus 90 losses, which was good enough to earn them fifth place in the standings.
With a straight face, one veteran reporter turned to me and wryly remarked, "Looks like it's another rebuilding year. That makes 40 out of 42 seasons."
Some 19 years later, auditors at the Public Company Accounting Oversight Board must have felt a lot like long-suffering Cubs fans themselves, saying "I've seen this somewhere before." In lieu of watching Bill Murray, the PCAOB has been examining the most recent spate of audit inspection reports conducted on the Big Four firms.
While the reports on Ernst & Young and PricewaterhouseCoopers had not yet been released at press time, the oversight body's examination of audits on clients by Big Four firms KPMG and Deloitte was more or less an instant replay of those conducted the previous year.
Although the identities of KPMG audit clients were kept confidential in the 29-page report, the PCAOB revealed that audit deficiencies resulted in one client having to restate, while its auditors uncovered problems in other audits with leases, worker's compensation accruals and lack of documentation to support an audit opinion.
Regarding its inspections of Deloitte's audit clients, the regulator concluded that in summaries of eight companies' audits, the deficiencies uncovered by the board's cadre of auditors led to earnings restatements in half of those cases. In a letter to the board, Deloitte reaffirmed its commitment to high-quality audit standards, and said that it had taken action to correct any issues raised by the audit regulator.
But my question is, were the deficiencies this year so different from the ones identified by the board in last year's reports? And one year later, why were they not corrected?
For those needing a refresher, in August 2004, the board's limited inspections of select Big Four audits conducted in 2003 cited a series of audit and accounting deficiencies, including failures to identify generally accepted accounting principles, departures from PCAOB standards and violations of the firms' own internal quality control policies.
Those findings were probably not the salve the profession and the public were looking for after a string of massive accounting implosions.
In fact, weeks before the 2003 deficiencies were publicly identified, PCAOB Chairman William McDonough spoke to a House Financial Services subcommittee and revealed that his board had uncovered, as he described it, "significant audit and accounting issues."
Groundhog Day in audit inspections?
For the profession's sake, let's hope the Big Four won't take 40 years to rebuild.
