AN ANALYSIS OF AUDIT DEFICIENCIES BASED ON SECTION 104 INSPECTION REPORTS ISSUED BY THE PCAOB DURING 2004–2007

Abstract

Section 104 of the Sarbanes-Oxley Act of 2002 requires the Public Company Accounting Oversight Board (PCAOB or Board) to conduct inspections of each registered public accounting firm. Any audit deficiencies that exceed a certain significance threshold are summarized in the public portion of the Board’s inspection report. The purpose of this analysis is to evaluate the accounting firms inspected and the audit deficiencies cited in the 552 Section 104 inspection reports issued by the PCAOB during 2004–2007. Specific examples of deficiencies are presented to illustrate the types of deficiencies identified by the PCAOB inspection team. To provide a broader context for understanding these data, statistics relating to audit opinions and restatements filed during 2002–2007 are provided, using data collected from Audit Analytics™. An analysis of the time lapse between the inspections of Big-4 firms and the issuance of these inspection reports is presented. Some final conclusions are provided.