Who wins the award for the best PCAOB inspection report over the last decade?
Which firm had the worst PCAOB inspection record over the last decade?
To answer these questions, I reviewed the 2010 – 2020 inspection report data published by the PCAOB. I chose the 7 largest US firms by revenue – Deloitte, PWC, EY, KPMG, RSM, BDO, Grant Thornton – and calculated the annual deficiency rate for each firm.
The PCAOB conducts an annual inspection of accounting firms that audit more than 100 issuers. An issuer is a company that files financial information with the SEC. The PCAOB samples a selection of clients and analyzes whether audit deficiencies exist. For example, in 2020 the PCAOB selected 29 of Grant Thornton’s clients and found audit deficiencies in 5 clients. This corresponds to a deficiency rate of 17%.
Now, before looking at the deficiency rates in the table below, just remember that a deficiency does not mean that an accounting firm failed to perform an audit. The PCAOB considers a deficiency to be any issue identified in an audit in which the accounting firm had not obtained sufficient appropriate evidence to support the audit opinion.
Firm Deficiency Rates: 2010 – 2020
Drumroll…
The clear winner for lowest deficiency rate over the last decade is Deloitte! Congratulations to all the Green Dotters out there.
The clear loser for highest deficiency rate over the last decade is BDO!
Overall, deficiency rates have been on a downward trend. However, BDO seems to be going the opposite direction and I’m not sure what happened with RSM in 2017.
With a clear advantage over the rest of the playing field, P.Dubs (2% 2020 deficiency rate!) and Deloitte (4% 2020 deficiency rate!) look primed to battle it out in 2021 for PCAOB inspection supremacy.
Firm Deficiency Rates Line Chart: 2010 – 2020
Comparing the Big 4 average deficiency rate of 29% to the three national firms average deficiency rate of 43%, there is a clear advantage Big 4, although KPMG does bring the average down somewhat.
The PCAOB also publishes the deficiency “type”. A deficiency can relate to a financial statement (FS) deficiency, such as failing to test the valuation of investments or a deficiency related to internal control over financial reporting (ICFR), such as failing to test the Company’s controls. A client that has both types of deficiencies is classified as “both” by the PCAOB. For example, of the five Grant Thornton clients that the PCAOB found with deficiencies in 2020, all five clients had deficiencies relating to both ICFR and FS.
Grant Thornton Deficiency Rates and Deficiency Types
BDO Deficiency Rates and Deficiency Types
RSM Deficiency Rates and Deficiency Types
EY Deficiency Rates and Deficiency Types
PWC Deficiency Rates and Deficiency Types
KPMG Deficiency Rates and Deficiency Types
Deloitte Deficiency Rates and Deficiency Types
