The Public Company Accounting Oversight Board has released critical inspection reports for the audits of PricewaterhouseCoopers and Ernst & Young, saying that the firms' work has so many deficiencies, their evaluations of companies' finances may be questionable.
The reviewed audits date back to more than a year ago in most cases. The PCAOB inspection team looked at PwC audits from May 2004 to January 2005, and E&Y audits from July to December 2004. PwC was found to have deficiencies in areas including auditing receivables and testing internal controls, while E&Y failed to identify errors in the application of generally accepted accounting procedures.
In a statement, PwC said, "On balance, we believe that we are executing quality audits. However, we take seriously the findings identified ... during the 2004 inspection of our 2003 audit engagements, and we will incorporate these findings into our ongoing audit quality improvement efforts."
"We thoroughly evaluated each matter described in the report and have taken actions where appropriate,'' Ernst & Young said in a written response to the board last month.
In the separate reports, which don't name the clients involved, the PCAOB said that problems with eight audits by Ernst & Young and 30 by PwC were big enough to suggest that the accounting firms failed to obtain "sufficient competent evidential matter" to support their opinion on clients' financial statements.
Over the past month, the PCAOB released inspection reports for the other members of the Big Four -- Deloitte & Touche and KPMG. Those reports pointed to a number of deficiencies in those audits as well, and said that the PCAOB found deficiencies in 6 percent of audits by Deloitte and 25 percent of audits by KPMG.
Deficiencies in past audits conducted by BDO Seidman LLP were also noted in the latest round of released reports.The PCAOB reports are available at www.pcaobus.org/Inspections/Public_Reports/ .
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