As you may have heard, BDO’s last PCAOB inspection was ass with an impressively bad 86% deficiency rate. That’s so ass that even Grant Thornton did better than they did (54%). Apparently some Dem senators are outraged at the PCAOB for this, insinuating that the PCAOB could be doing a better job bullying firms into not being so ass at auditing.
Democratic senators Elizabeth Warren and Sheldon Whitehouse said deficiency rates that have exceeded 40 per cent for the past two years call into question whether the Public Company Accounting Oversight Board is properly holding the industry to account.
In a letter to the PCAOB seen by the Financial Times, the senators zeroed in on BDO, the sixth-largest accounting firm in the US, where almost all audits examined by inspectors last year were found to have flaws. They asked whether “repeat offenders” are deterred by potential fines that they said are typically “a drop in the bucket” compared with firm revenues.
“The PCAOB must do better,” Warren and Whitehouse wrote. Either the audit standards written by the board were inadequate, they wrote, “or the PCAOB is failing to establish accountability for firms that do not meet them”.
Oh boy. Look, lady, the PCAOB has been very busy fining audit firms halfway across the world for not filing a timely Form 3, ain’t nobody got time to hand down some consequences to sloppy firms.
In their defense, the PCAOB has been handing down record fines in recent years. Obviously this tactic isn’t working because the firms know they can’t/won’t do shit of real consequence at the end of the day. Their largest fine to date was $25 million against KPMG Netherlands because auditors were sharing answers on BS internal training and the firm fibbed when they told the PCAOB they didn’t know it was happening (spoiler: it happens everywhere). “The PCAOB will not tolerate cheating nor any other unethical behavior, period,” said PCAOB Chair Erica Y. Williams when that fine was handed down earlier this year. “Impaired ethics threaten the investor confidence our system relies on, and the PCAOB will take action to hold firms accountable when they fail to enforce a culture of honesty and integrity.” But screwing up 86% of your job is fine, whatever. Just have Chair Williams write another scathing op-ed for the Wall Street Journal and say for the millionth time that firms must do better.
A question that gets asked any time a new PCAOB fine (or verbal tongue-lashing) happens is this: Does it matter? Did financial statements need to be restated or opinions changed as a result of the misbehavior a firm is fined for? No? Then who cares.
We all know the PCAOB is the TSA of capital markets: security theater. Evidently Senators Warren and Whitehouse are just now figuring that out too. I’ve got a free idea for them. Bully the PCAOB into forcing firms to report the exact percentage of work being performed by offshore staff. That should lead you in the right direction.
Elizabeth Warren criticises accounting watchdog over BDO audit failures [Financial Times]
PCAOB clearly sharpened their pencils for this round of reviews but at the end of the day it’s a lot of issues with stuff like the extent of controls testing or not documenting completeness of the populations. Real audit nerd stuff that would instantly make a lay person thankful they are in another profession if it were explained to them. Wake me up when there’s a material fraud that went undetected.
Given the quality of the audits being performed by these firms, I’d venture to guess that material fraud is going undetected every day.
Elizabeth Warren is well-meaning, but an economic ignoramus, despite teaching bankruptcy law at Harvard. The Metcalf Report was issued in December 1976, 48 years ago, Nothing has improved in auditing in 48 years. Why? Because the big firms are doing exactly what Congress wants, no matter what it claims.
Does anyone believe Congress wants say the Fed, or any other large financial institution audited?
If Congress is serious, it will close the PCAOB and increase CPA firms’ liability for bad audits. Not worry about filing say Forms 3.