The Top 5 Errors in Public Company Audits
May 08, 2014 | By Chris Sluty
According to survey results released on April 10, major public company audits conducted by the six largest accounting firms are routinely littered with errors. The survey was conducted by the International Forum of Independent Audit Regulators. They looked at audits conducted at public companies that are considered to be “systemically important” to the worldwide economy.
The most commonly found issue was fair value measurement, which was cited as an error or flaw in 217 of the 989 reviewed audits. Fair value measurement was also the leading flaw in 2012′s survey. Here are the top five flaws and how many times they appeared in the audit reviews:
- Fair value measurement – 217
- Internal control testing – 156
- Adequacy of financial statements and disclosures – 120
- Revenue recognition – 104
- Group audits – 89
A board member of the Public Company Accounting Oversight Board said that the survey’s findings should be a wake-up call for the accounting industry. He said that more work is needed to improve the quality and reliability of public company audits.
Auditing came into greater focus in the aftermath of the 2007 – 2009 financial crisis. In the run-up to the crisis, many finanancial firms didn’t fully account for the potential losses on their subprime mortgage holdings. Since the crisis, critics have wondered why accounting firms didn’t do more in audits to highlight those errors.
The six firms included in the survey were BDO, Grant Thornton, PWC, KPMG, Deloitte, and Ernst & Young. A representative from PWC said the company would review the survey’s findings and determine what it can do to improve audit quality. The other five firms didn’t comment.
A representative from the Center for Audit Quality said that it’s important to realize that audit quality and control has made great progress since new regulations were passed in 2002. She said those regulations have led to significant improvements in audit quality and controls over financial reports.
[button color="accent-color" hover_text_color_override="#fff" image="default-arrow" size="medium" url="http://www.floqast.com/closing-software-series-closing-softwares-impact-on-your-audit-and-sox-compliance/" text="Learn More: Audit Prep and Sox Compliance" color_override=""]