In mid-January, the Public Company Accounting Oversight Board issued reports on its 2004 inspections of Grant Thornton LLP and Crowe Chizek & Co. LLC - outlining "audit deficiencies" similar to other recently released reviews from the board.In its Grant Thornton inspection report, released on January 19, the board highlighted problems that it found in audits for 15 of the firm's public company clients between May and October 2004. The problems included failure to disclose related-party transactions and testing of information technology controls, as well as accounting problems for:
* Certain securitization transactions;
* An allowance for loan losses;
* Financial instruments and hedging activities; and,
* Goodwill impairment.
In a December 28 letter to the PCAOB, Grant Thornton wrote, "While we have professional judgment differences on the nature, timing, extent and documentation on specific matters, and have discussed these with the staff, we appreciate the board's comments and believe differing points of view can be a catalyst for meaningful change." The firm said that it is performing additional procedures and adding appropriate currently dated documentation.
In its Crowe Chizek inspection report, also released January 19, the board said that it found problems in the audits of 11 of the firm's public company clients in November and December 2004.
The board found problems with Crowe Chizek's testing for the market value of certain securities and failure to control the notes receivable confirmation process, as well as accounting issues related to:
* Allowances for loan losses;
* Revenue recognition;
* Goodwill impairment;
* Mortgage servicing rights and amortization expense; and,
* Control of the notes receivable confirmation process.
Crowe Chizek, in a December 15 letter to the PCAOB, said that it had taken actions to address the concerns, though it did say that the differences between the auditors and the inspectors came down to "professional judgment," and not to auditor error.
The PCAOB noted similar audit deficiencies in the work of the Big Four accounting firms, as well as mid-level firms BDO Seidman and McGladrey & Pullen in reports that were released in late 2005.
All of the PCAOB's inspection reports are available at www.pcaobus.org/inspections/public_reports/index.aspx.
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