Uh-oh, this cant’t make Joe U., Lara Abrash, and other Deloitte audit folks happy (bold part added by us for emphasis):
In the 2021 inspection of Deloitte & Touche LLP, the PCAOB assessed the firm’s compliance with laws, rules, and professional standards applicable to the audits of public companies.
We selected for review 54 audits of issuers with fiscal years generally ending in 2020. For each issuer audit selected, we reviewed a portion of the audit. We also evaluated elements of the firm’s system of quality control.
We also selected for review two reviews of interim financial information (“interim reviews”). Our reviews were performed to gain a timely understanding of emerging financial reporting and auditing risks associated with issuers that were formed by mergers between non-public operating companies and special purpose acquisition companies (SPACs). We did not identify any instances of non-compliance with PCAOB standards related to the interim reviews that we reviewed.
Seven of the 54 audits we reviewed in 2021 are included in Part I.A of this report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and substantive testing of inventory.
So said Deloitte’s 2021 PCAOB inspection report, which was released on Dec. 19. D-town’s 13% error rate in its latest auditing report card is its worst since 2017 when it screwed up on 20% of audits selected by the PCAOB. The good news is since that 20% deficiency rate in 2017, Deloitte has cut down on its auditing errors so much that even with PwC’s historically low 1.9% error rate in its 2020 inspection report and its 3.6% error rate in its 2021 inspection report, Deloitte still has a better average deficiency rate than PwC for audit inspection years 2018 to 2021:
|2018: 11.5%||2018: 25%|
|2019: 10.3%||2019: 30%|
|2020: 3.8%||2020: 1.9%|
|2021: 13%||2021: 3.6%|
|Average: 9.6%||Average: 15.1%|
So that part should make Joe U., Lara Abrash, and other Deloitte audit folks happy.
Of the seven wayward Deloitte audits in its 2021 inspection report, one had deficiencies in both internal control over financial reporting and in the financial statement, two had deficiencies in the financial statement only, and four had deficiencies in ICFR only.
There were two audit areas in which deficiencies were found, according to the PCAOB:
- Inventory: The deficiencies primarily related to substantive testing of inventory and testing controls over the existence of inventory, including cycle-count controls.
- Revenue and related accounts: The deficiency related to testing controls over revenue.
Two Deloitte audits with substantial errors happened for issuers in both the financials and energy sectors, while the other three were in the consumer discretionary, IT, and utilities sectors.
Feel free to peruse Deloitte’s latest audit inspection report below.