Acuitas, a valuation and litigation consultant, has released a survey of recent PCAOB inspections that says that 43% of all audits inspected by the PCAOB in 2013 had deficiencies (compared to 16% in 2009).
The “2015 Survey of Fair Value Audit Deficiencies,” its fourth annual analysis of recent PCAOB inspections, also said that the number of Fair Value Measurement (FVM) and impairment deficiencies as a percentage of the total continue to be significant, representing 31% of all audit deficiencies in 2013.
Two trends that began to emerge in last year’s survey maintained their prominence, Acuitas reported. First, the FVM audit deficiencies attributable to mergers and acquisitions activity increased to 49% in 2013, up from 45% in 2012 and an average of 9% from 2008 to 2011. Second, the number of deficiencies caused solely by failures to assess risk and test internal controls remained high in 2013, at 45% of all deficiencies for the top 25 firms. By comparison, such failures were present in 22% of FVM deficiencies between 2008 and 2012.
According to Mark Zyla, managing director, “We have seen a significant shift from the years where FVM deficiencies were largely the result of financial instruments to the current trend of business combinations and a failure to test or understand financial assumptions. This shift has likely been caused by audit improvements for financial instruments that resulted from the PCAOB inspection process and by increased merger activity in recent years. The auditing community should certainly be concerned about the continuing increase in deficiencies caused by a failure to assess risk and internal controls, and the PCAOB’s assessment that they are caused by ‘a lack of due professional care.’”
The complete survey is available from Zyla, who can be reached at email@example.com, or on the Acuitas website at http://www.acuitasinc.com/home.html.