ParenteBeard Forensic, Litigation & Valuation Services e-alert
March 2013

Summary of the Latest Public Company Accounting Oversight Board Inspection Report

The following is an industry update of a recent Public Company Accounting Oversight Board (PCAOB) inspection report released February 25, 2013. 

The PCAOB report was for inspections of firms with less than 100 public filers covering the period 2007 – 2010.  Under PCAOB rules, firms with less than 100 public filers are subject to triennial inspections.  1,801 audits were inspected during this time period.  Of the firms inspected, 44 percent had at least one significant audit deficiency.  The audit deficiencies were primarily related to auditing revenue recognition; auditing share-based payments and equity financing instruments; auditing convertible debt instruments; auditing fair value measurements; auditing business combinations and impairment of intangible and long-lived assets; auditing accounting estimates; auditing related-party transactions; use of analytical procedures as substantive tests; and audit procedures to respond to the risk of material misstatement due to fraud. 

Twenty firms with deficiencies identified in the 2007 – 2010 inspections failed to respond to the PCAOB with remediation plans.  This leaves the PCAOB with some options – (1) full release of the PCAOB inspection report disclosing the specific firm’s internal control problems (this portion of the firm’s report is maintained as confidential and not released to the public under normal circumstances) or (2) litigating against the firms. Litigation can have severe repercussions such as banning the firm from SEC practice, litigation against the individual partner(s) responsible for the engagement, and/or monetary sanctions.  Although these 20 firms have not responded, it takes substantial time to bring disciplinary actions against the firms and their partner(s).  It’s usually the blatant disregard for the PCAOB and the lack of concern for the auditing profession that will get the firms into trouble.

If you have questions or are interested in learning more about ParenteBeard’s accounting and auditing malpractice services, please contact one of the following individuals:

Bob Gray  |  Bob.Gray@ParenteBeard.com  |  214.658.6570 
Glenn Newman  |  Glenn.Newman@ParenteBeard.com  |  215.972.2354
Richard Hilliard  |  Richard.Hilliard@ParenteBeard.com  |  412.697.6412

ParenteBeard LLC: Confidence Through Clarity