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Personal Fouls: PwC and KPMG Under Fire

November 11, 2013

With PwC and KPMG being at the top of the public accounting world, the PCAOB states that they are failing to keep those titles free from black marks. In recent reports, the PCAOB has uncovered significant evidence of these two firms failing to support their audit opinions on the financial statements and on the effectiveness of good internal controls.

While observing PwC specifically, deficiencies were found in 21 of the 52 audits that were inspected. That’s just over 40% of their audits! PwC had miss calculated the valuation of two categories on the financial statements of various companies and also failed to perform thorough enough tests of controls for many companies, resulting in poor marks in these areas in following years. In other situations, accuracy was the issue when trying to determine the value of certain assets of the company, swaying the bottom line of the financial statements.

KPMG was in a similar boat, having 17 deficiencies in 48 inspected audits (just over 35% of their audits). Problems that KPMG ran into included improper evaluation of control deficiencies which were later proven to be material weaknesses in the company’s structure. Continuing on the controls theme, KPMG was also targeted for misevaluating a company’s time at which they should next be audited, meaning they missed important information during the controls inspection.

As these two companies promote themselves on being “the best” in the world, outsiders only see this as an act of laziness within the field. There is a lot to say about these stats. It could be that since they all came within the year of 2012; it is just a generation problem, meaning this could be a newly occurring trend. With that comes new “professionals” to the field, young and eager to learn, but with a lack of knowledge and a small awareness to the details of various auditing work. To others, this could be the effects of a changing day and age with technology now taking over the wheel of many projects.

It is not proven that technology was the reason for these deficiencies throughout 2012, but think of it this way. Technology has slowly been taking over the world. With accounting now switching almost completely over to this method, a countless amount of data had to have been converted from paper to pixel. Programs have been getting tested frequently, finding bugs day in and day out which need to be fixed in order to smoothly access all of the programs’ functions. The learning curve, especially for the older generation of auditors, has been steepened, creating a once almost robotic human process into a process that robots actually do perform all the work. The work that people used to do is now being answered in seconds, but who knows where accuracy lands on that scale. With that, technology has completely dominated all aspects of this field.

It is outrageous to see two of the top accounting firms in the world having such issues with their auditing process which they have proven to work for years now. The difference in what was occurring years ago to now can’t narrow the overlying issues down to just one instance. The one thing that we can point out is that technology and its presence 20 years ago was very faint, and now, it is more apparent than ever before.

http://economia.icaew.com/news/august-2013/pwc-and-kpmg-audits-fall-foul-of-pcaob

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