Watchdog faults Ernst & Young on audits

Reuters, by Sarah N. Lynch, Thu Dec 22, 2011

(Reuters) - A 2010 inspection by the U.S. audit industry watchdog faulted accounting giant Ernst & Young for a range of audit issues, including not getting enough supporting evidence and problems with testing the fair value of financial instruments.

The Public Company Accounting Oversight Board (PCAOB) watchdog released the inspection report publicly for the first time on Thursday. It encompassed a review of 62 audits performed by the firm in 2010, plus one audit in which Ernst & Young played a role, but did not serve as the lead auditor.

Of the 63 total audits reviewed, the PCAOB identified a variety of problems in 13 of them. That is up from a 2009 inspection report in which 58 audits were reviewed and only five deficiencies were found.

Under its rules, the PCAOB, in some circumstances, must delay for a year the public release of negative findings from an inspection report.

In a response accompanying the PCAOB's findings, Ernst & Young said that while it did "not agree with the specific characterization of the work we performed in all cases, on an overall basis we do agree with certain findings in the report and, where applicable, have taken actions to address such findings."

The PCAOB's report on Ernst & Young is the last to be released in a series of 2010 inspections of the Big Four audit firms.

At PricewaterhouseCoopers there were problems in 28 audits out of 76 audits reviewed.

For Deloitte & Touche, problems were found in 26 of the 58 audits reviewed.

KPMG had 12 problems with 54 audits reviewed.

The PCAOB was created in 2002 by the post-Enron Sarbanes-Oxley corporate governance and accounting reform law.

In recent years, the audit watchdog has started taking a harder look at major accounting firms.

The PCAOB earlier this year imposed the longest-ever ban against a partner of a Big Four firm when it accused former Ernst & Young partner Peter O'Toole of faking audit documents.

(Reporting By Sarah N. Lynch; additional reporting by Nanette Byrnes in Chapel Hill, N.C.; Editing by Tim Dobbyn)

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