When it comes to auditing, CEOs of Fortune 500 companies and beyond rely on accounting firms to verify their finances. These CEOs are expecting accurate snapshots of their business that can be published and viewed by shareholders and the rest of the general public. However, a recent report from the Public Company Accounting Oversight Board has revealed that a scary amount of recent audits have been riddled with errors and defects.
Overview
The Public Company Accounting Oversight Board was created by Congress in 2002, as a mandate to protect the interests of the public and investors. The direct reason the board was founded was to prevent something similar to the collapse of Enron in 2001 from happening when the $63 billion accounting firm collapsed due to accounting scandals. Over two decades later, the Oversight Board is once again expressing its concerns, even going as far as to say that the overall state of the auditing industry is “completely unacceptable.”
PCAOB Report
According to the report, over one-third of all audits conducted by global accounting firms, including the big four firms, had errors in them. When compared to the tax year 2021, that is an increase of 9%, but it is also important to mention that the Board has been reviewing these audits and uncovering errors at a much higher rate than previously. This is because, during times of economic instability, the board tends to investigate more. It is likely that these audit mistakes have been prominent for several years and are just being discovered now. When the PCAOB decided to include overseas firms that are not affiliated with the global network, they discovered that an astonishing 40% of all audits had mistakes on them. “40% is completely unacceptable,” PCAOB chair Erica Y. Williams said at a Tuesday press conference. “What I like to think about is not what is an acceptable deficiency rate, but what can these firms do to fix this problem and reverse this troubling trend.”
What’s to Blame?
The Public Company Accounting Oversight Boards did have discussions with some of these auditing firms in question. When asked why there is such a high increase in errors, the same answer is generally given across the board. These answers include the impact of the pandemic and high staff turnover. However, PCAOB chair Erica Y. Williams wasn’t privy to accepting these answers.
PCAOB Chair Statement
“Some firms have said the ongoing impacts of COVID-19 and the Great Resignation, the War on Talent, could be contributing factors, but we’re three years out from the start of the pandemic and these challenges are no longer new,” Williams said. “Firms really do have a responsibility to meet the challenges head-on. Forty percent deficiency rate simply cannot be explained away by the pandemic.”
Wrap Up
The specific names of the firms that were involved in the PCAOB report were not disclosed. As time goes on, we will have to wait and see whether or not this astonishing report will be addressed, and if steps will be taken to prevent errors from happening in the future.