BDO USA Is Finally Trying to Do Something to Improve Its Horrible Audit Quality

While PCAOB inspection reports are only one indicator of how good or bad a public accounting firm’s audit quality is, it’s still pretty embarrassing when a firm gets a bad report card. Consecutive years of horrible inspection reports (2013 and 2014) is what drove KPMG executives to hatch a scheme to steal confidential audit inspection information from PCAOB insiders in an effort to improve the firm’s results.

Another firm with a big pile of embarrassing PCAOB inspection reports is BDO USA. From 2012’s inspection report to 2016’s report, BDO had an awful average audit failure rate of nearly 63%. BDO followed that up with audit deficiency rates of 39% (2017), 48% (2018), 42% (2019), and a piss-poor 54.1% (2020).

So changes are afoot at Bravo Delta Oscar, according to a press release. First, BDO is reorganizing its assurance practice:

BDO’s Assurance practice is being reorganized into two distinct functional areas and reporting structures. The first functional area consolidates the operational, professional and client services aspects of the business under one umbrella. The second functional area covers quality management, inspections and independence, and will report to Lillian Ceynowa in her capacity as Audit Quality and Quality Management Leader. The purpose of this reorganization is to implement an objective governance structure focused on delivering high quality audits in order to protect investors and other stakeholders and further the public interest.

Another change is the addition of Ceynowa as the firm’s new audit quality and quality management leader. She most recently was an associate chief auditor at the PCAOB and was an audit manager at KPMG early in her career, according to her LinkedIn profile. She has also worked at the AICPA and the Center for Audit Quality. BDO said:

This role is a senior-level position intended to drive robust strategic actions to further strengthen audit quality.

Ceynowa brings more than 30 years of public company auditing experience. At the PCAOB, where she worked for over a decade, she was responsible for developing and advising on auditing and related professional practice standards, including auditor independence rules.

“I’m excited to join BDO, a firm which has already impressed me with the seriousness of its commitment to audit quality,” said Ceynowa. “I took this opportunity because I believe in the important role auditors play in effectively functioning capital markets. During my time at the PCAOB, I focused on protecting investors through policy initiatives that strengthened audit quality for the profession as a whole. Now, I can directly impact audit quality on BDO’s audit engagements by identifying opportunities to strengthen their system of quality management. I am excited about the prospects that lie ahead and very much look forward to helping take the firm’s commitment to audit quality to the next level.”

Finally, BDO has formed an Audit Quality Advisory Council:

The newly formed Audit Quality Advisory Council is designed to provide input regarding BDO’s system of quality management. The council includes an independent member who will provide objective input and perspectives to BDO based on his vast experience and background.

AQAC members include:

• Maria Karalis, Chair and BDO Board Member (Assurance)
• William Eisig, National Managing Partner and Practice Leader (Assurance)
• Phillip Austin, National Managing Partner – Professional Practice Leader & Audit
• Steven Shill, BDO Board Member (Assurance)
• Jim Brady, Independent Member, Vice Chairman of Advisory Services at alliantgroup and former Vice Chair at Grant Thornton LLP

“At BDO, one of our core values is to embrace change,” said William Eisig, CPA, National Managing Partner and Practice Leader, BDO Assurance. “As our firm has grown and evolved, so must our system of quality management. We are very focused on strengthening our approach to monitoring so that we can continuously enhance the quality of our audits. The initiatives we are reporting today will go a long way in reinforcing our vital role as auditors in sustaining strong capital markets.”

Let’s take a look at PCAOB inspection report results for two other firms that launched audit quality improvement committees in the last few years. EY formed an Independent Audit Quality Committee in early 2019 (former PCAOB member Jeanette Franzel serves on the panel), and since then, the firm’s auditing failure rates have improved from 26% in 2018 to 18% in 2019 to 15% in 2020. Grant Thornton also formed an Audit Quality Advisory Council in late January 2019, and its auditing report cards have gotten a lot better. Failure rates have dropped from 25% in 2018 to 22% in 2019 to 17.2% in 2020.

It’s anyone’s guess as to whether BDO will achieve similar improvements to its audit quality in the coming years, but having this new audit quality panel, as well as the other changes the firm made to its assurance practice, is at least a step in the right direction.