Deloitte & Touche LLP repeatedly failed to support assumptions in audits examined in a 2007 inspection, the Public Company Accounting Oversight Board said in the first public report of unresolved deficiencies involving one of the so-called Big Four accounting firms.
The firm’s quality controls and independence systems give “cause for concern,” the PCAOB said in its report, which was released today. The Washington-based nonprofit, created in 2002 to oversee audits of public companies after the collapses of Enron Corp. and WorldCom Inc., gives audit firms at least a year to fix deficiencies and only releases the reports in cases where auditors fail to make sufficient improvements.
“These deficiencies may result, in part, from a Firm culture that allows, or tolerates, audit approaches that do not consistently emphasize the need for an appropriate level of critical analysis,” the PCAOB said in the Deloitte report, which didn’t name the clients involved in the cited audits.
The PCAOB in 2007 looked at Deloitte’s practices through inspections at the company’s New York headquarters and 18 other offices. The report made public today lays out instances in which the firm insufficiently weighed clients’ valuation of assets and income-tax assumptions. The watchdog also faulted Deloitte’s independence procedures, saying it “has no formal system in place to monitor the services its foreign affiliates actually perform.”
“In our drive for continuous improvement, we have been making a series of investments focused on strengthening and improving our practice,” Deloitte Chief Executive Officer Joe Echevarria said in a statement. Echevarria, who has been with the firm since 1978, was elected to the top job in April.
The disclosure isn’t a disciplinary action, said Colleen Brennan, a PCAOB spokeswoman. Dozens of smaller registered public accounting firms have had similar criticisms made public and have retained their registration, she said.