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State Board Report

March 2013

Significant audit deficiencies are down, but a long way from gone, according to the latest report based on the Public Company Accounting Oversight Board’s inspections. In its “Report on 2007-2010 Inspections of Domestic Firms that Audit 100 or Fewer Public Companies,” released on February 25, the PCAOB says the triennial inspections conducted during 2007-2010 found 44 percent of the firms had at least one significant audit performance deficiency; while in 2004-2006 the inspectors had found 61 percent of the firms to have at least one significant audit performance deficiency. The report explains: “The deficiencies represent instances in which the Inspections staff found that the auditor, at the time it issued its opinion that the financial statements were presented fairly in all material respects in conformity with U.S. generally accepted accounting principles (‘GAAP’), had not fulfilled its fundamental responsibility to obtain reasonable assurance about whether that was the case.” The report includes observations from 748 inspections of 578 domestic firms and encompasses reviews of aspects of 1,801 audits. It does not cover the PCAOB’s annual inspections of firms which conduct more than 100 audits of public companies annually.

Twenty firms during 2007-2010 did not provide any remediation response to the PCAOB’s inspection findings and, as provided in the Board’s rules, the quality control criticisms of those reports were made public.

The reports on 143 audit firms that failed to address quality control criticisms satisfactorily, of which 99 are U.S. firms, can be found on the PCAOB website.

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