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PCAOB Critiquing Time

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	10/7/2005 3:27 AM
[Note: both the PCAOB and KPMG are subscribers to The Analyst's Accounting Observer. Not that it has any bearing on the comments below, but someone might care.] In the last week, the Public Company Accounting Oversight Board has released its findings from annual inspections on two of the Big Four firms. KPMG was first last week: the report was quite unflattering. For instance: "In some cases, the deficiencies identified were of such significance that it appeared to the inspection team that the Firm had not, at the time it issued its audit report, obtained sufficient competent evidential matter to support its opinion on the issuer's financial statements. In some of those audits, that conclusion followed from the omission, or insufficient performance, of a single procedure, while other audits included more than one such failure..." The report went on to list some of those deficiences: incorrect lease accounting (and not just of the routine stuff of earlier this year); instruments included as cash equivalents that weren't really equivalents; botched suggested adjustments; and omitted testing of goodwill impairments, among other episodes. It's not looking like a good year for KPMG... The Deloitte report, released on Thursday, contained its share of unflattering findings, too. Like KPMG - and one would suspect, every firm examined by the PCAOB this year - there were improper applications of lease accounting. There was also a Deloitte client with botched securitization accounting; another found with an allowance for loan losses that wasn't examined closely by the audit team; and erroneous impairment charges, among other episodes. To my knowledge, KPMG has not contested the PCAOB's findings. Deloitte, on the other hand, disagrees with the PCAOB findings in several cases, according to the Financial Times. Might be an interesting PCAOB reporting season.

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