PCAOB Criticizes Deloitte, Grant Thornton for Quality Control Issues for Fourth Year in a Row; Flags Deficiencies at 16 Firms
February 5, 2025
The Public Company Accounting Oversight Board (PCAOB) has criticized Deloitte & Touche LLP and Grant Thornton LLP for failing to address quality control (QC) problems found during 2021 audit inspections. This is the fourth time in a row that the board found problems with certain aspects of both firm’s QC systems.
When the PCAOB publishes an inspection report, it keeps confidential the portion that covers weaknesses with an audit firm’s quality management and supervision. If the firm has not addressed the problems within 12 months, the PCAOB makes quality control findings public. The entire process can be drawn out while a firm negotiates with the supervisory board about the fixes or remedial efforts made.
Deloitte
In the latest inspection report, made public on February 3, 2025, the PCAOB once again faulted Deloitte on its internal policies about financial holdings disclosures.
“The inspection results indicate that the firm’s system of quality control does not provide reasonable assurance that the firm and its personnel will comply with the firm’s policies and procedures with respect to independence-related regulatory requirements,” the inspection report states.
This was the same QC problem identified during 2018, 2019, and 2020 inspections.
Deloitte did not immediately respond to a request for comment.
The PCAOB said that the Big Four firm conducts regular internal audits of a sample of its personnel to monitor their compliance with its independence policies.
In the audits conducted during the 12-month period ended December 31, 2020, Deloitte identified that 20% of the partners and principals and 33% of the managing directors and managers had not reported financial relationships.
“This high rate of non-compliance with the firm’s policies, which are designed to provide compliance with applicable independence regulatory requirements, provides cause for concern, especially considering that these individuals are required to certify on a semi-annual basis that they have complied with the firm’s independence policies and procedures,” the report states
In 2020 Deloitte found that 25% of the partners and principals and 39% of the managing directors and managers had not reported financial relationships.
In 2019 Deloitte identified that 34% of the partners and principals and 29% of managing director and managers did not comply with internal policy.
In 2018 the firm found that 26% of the partners and principals and 38% of the managing directors and managers had not reported their financial holdings.
“We are deeply committed to safeguarding our independence, which forms the core of the public trust that the markets place in the external audit profession,” Deloitte said in an emailed statement. “We take input from our regulators very seriously and, in response to the PCAOB’s comments, and consistent with our focus on continuous improvement, we embarked on a multi-year journey to further strengthen our system of quality control related to the reporting of personal financial holdings of our professionals and their immediate family members, including investing in innovative technology to identify potential conflicts on a real-time basis.”
Grant Thornton
The PCAOB revealed the following QC problems at GT: testing controls; reliance on data or reports; and supervision of the audit.
These three problems were previously identified in the 2020 inspection.
In the 2019 inspection, GT was criticized for engagement quality review (EQR) problems in addition to the three areas.
In the 2018 inspection, the PCAOB criticized GT on testing controls, supervision of the audit, EQR, and policies for financial holdings disclosures.
“At Grant Thornton, we regularly implement new policy and process updates, rigorous trainings and enhanced quality controls. We also consistently invest in innovation and advanced technologies. Through these efforts, we’re addressing our Part II findings and bolstering our focus on providing high-quality audits,” GT said in an emailed statement. “You can learn more about Grant Thornton’s commitment to audit quality and the initiatives we’re implementing in a statement on our website.”
Other Inspection Reports
The PCAOB, alongside the expanded Deloitte and GT reports, unveiled Part II quality control criticisms for nine other firms:
Grant Thornton Auditores Independentes Ltda. (Brazil) (September 29, 2022 report)
M&K CPAS, PLLC (June 9, 2022 report)
Whitley Penn LLP (April 8, 2022 report)
Wolf & Company, P.C. (August 31, 2022 report)
Assurance Dimensions (April 8, 2022 report)
KPMG (Australia) (June 23, 2022 report)
MaloneBailey, LLP (November 7, 2022 report)
Ramirez Jimenez International CPA’s (November 7, 2022 report)
Turner, Stone & Company, L.L.P. (February 28, 2022 report)
At the same time, the board released 17 new audit inspection reports, faulting all but one firm for deficiencies in at least one area. Those firms include Big Four affiliates in Ireland, the United Kingdom, South Korea, Canada, and Bermuda.
At London-based PricewaterhouseCoopers LLP, the PCAOB did not find any Part I.A deficiencies related to audits with unsupported opinions.
It did, however, identify one Part I.B deficiency (other instances of non-compliance with PCAOB standards or rules) tied to non-compliance with Auditing Standard (AS) 1015, Due Professional Care in the Performance of Work and AS 2101, Audit Planning, related to an unregistered firm’s substantial role in an audit.
The firm also brought to the PCAOB’s attention one Part I.C (independence) issue, in which it identified potential instances of non-compliance with Rule 2-01(c) of Regulation S-X related to financial relationships and contingent fees.
The firm, in its response letter, said it has taken responsive action’s where appropriate to the PCAOB’s observations. It noted that it self-reported the independence matters, and said it concluded its “objectivity and impartiality were not impaired in respect of the relevant audit.”
At Seoul-based Ernst & Young Han Young, the PCAOB spotted multiple Part I.A deficiencies in a financial statement and internal control over financial reporting (ICFR) audit tied to revenue and long-lived assets. It also identified one Part I.B item in which it said the firm was non-compliant with AS 1215, Audit Documentation because it “did not include all relevant work papers in the final set of audit documentation it was required to assemble” in an audit.
The firm, in a response letter, said it has thoroughly evaluated all matters described in Part I of the report and taken actions where appropriate in accordance with PCAOB standards and its own policies.
“These actions did not change our audit conclusion, nor did the actions affect our reports on the issuer’s financial statements,” the firm stated in the letter.
Those 16 firms where the PCAOB identified deficiencies are:
Deloitte Ireland LLP, in Dublin, Ireland, with one client for which the firm was the principal auditor. The firm also participated in 29 audits in which it was not the principal auditor.
PricewaterhouseCoopers LLP, in London, United Kingdom, with 27 clients for which the firm was the principal auditor. The firm also participated in 114 audits in which it was not the principal auditor.
Weinberg & Company, P.A., in Los Angeles, California, with 29 clients for which the firm was the principal auditor.
BPM LLP, in Walnut Creek, California, with 21 clients for which the firm was the principal auditor.
Carr, Riggs & Ingram LLC, in Enterprise, Alabama, with four clients for which the firm was the principal auditor.
Ernst & Young Han Young, in Seoul, South Korea, with two clients for which the firm was the principal auditor. The firm also participated in 18 audits in which it was not the principal auditor.
Forvis Mazars, LLP, in Springfield, Missouri, with 132 clients for which the firm was the principal auditor.
Grant Thornton Auditores Independentes Ltda, in São Paulo, Brazil, with two clients for which the firm was the principal auditor. The firm also participated in five audits in which it was not the principal auditor.
Hudgens CPA, PLLC, in Houston, Texas, with five clients for which the firm was the principal auditor.
JTC Fair Song CPA Firm, in Shenzhen, China, with one client for which the firm was the principal auditor.
KPMG LLP , in Toronto, Canada, with 87 clients for which the firm was the principal auditor. The firm also participated in 38 audits in which it was not the principal auditor.
Michael T. Studer CPA P.C., in Freeport, New York, with seven clients for which the firm was the principal auditor.
PricewaterhouseCoopers Ltd., in Hamilton, Bermuda, with three clients for which the firm was the principal auditor. The firm also participated in six audits in which it was not the principal auditor.
Richey, May & Co., LLP, in Englewood, Colorado, with one client for which the firm was the principal auditor.
SRCO, C.P.A., Professional Corporation, in East Amherst, New York, with two clients for which the firm was the principal auditor.
Wipfli LLP, in Milwaukee, Wisconsin, with 34 clients for which the firm was the principal auditor.
The remaining firm was cleared by the PCAOB:
Deloitte Anjin LLC, in Seoul, South Korea, with one client for which the firm was the principal auditor. The firm also participated in 14 audits in which it was not the principal auditor.
The PCAOB also released an updated report based on an SEC determination:
Fiondella, Milone & LaSaracina LLP (October 24, 2024 report)
[Thomson Reuters]
