Board Releases Reports on 2003 Limited Inspections of Big Four Accounting Firms

The Public Company Accounting Oversight Board today issued reports on the Board’s 2003 limited inspections of the four largest public accounting firms in the United States.

The inspections examined compliance, quality control and selected public-company audits in the national and regional practice offices of Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP.

In the inspections, the Board identified significant audit and accounting issues that were missed by the firms and identified concerns about significant aspects of each firm's quality controls systems. The Board's inspection reports describe those issues.

“As our reports state, their emphasis on criticisms do not reflect any broad negative assessment of the firms' audit practices,” said PCAOB Chairman William J. McDonough. “The Board's inspections are unprecedented, and in this first year, our findings say more about the benefits of the robust, independent inspection process envisioned in the Sarbanes-Oxley Act of 2002 than they do about any infirmities in these firms' audit practices.

“None of our findings has shaken our belief that these firms are capable of the highest quality auditing,” Mr. McDonough said. “The Board is also encouraged by the firms' demonstrably cooperative attitude toward our inspections, which are designed to drive the firms to improve any aspects of their practices that may stand as impediments to the highest quality audit performance.”

The Sarbanes-Oxley Act of 2002 requires the PCAOB to conduct annual inspections of registered accounting firms that audit more than 100 public companies. The four firms that consented to the limited inspections in 2003 and four other U.S. firms are subject to full inspections in 2004.

The limited inspections of the four largest U.S. firms were conducted between June and December 2003 to provide the Board with a foundation for the full-scale inspections and to obtain a baseline understanding of the firms' internal systems of quality control over auditing. The inspections involved both an examination of each firm's policies, practices, and procedures related to public company auditing and a review of aspects of selected recent audits performed by each firm.

“These reports are the product of difficult and diligent work by a very dedicated group of individuals,” said George Diacont, Director of Registration and Inspections. “Our inspectors tell us that they joined the PCAOB to make a difference in the perception and reality of audit quality, and their efforts are clearly reflected in these reports.”

Final inspection reports are provided to the Securities and Exchange Commission and certain state authorities and made available to the firms, as provided in the Board’s rules.

With the reports, the Board issued a statement concerning the issuance of inspection reports, describing in detail the nature of the inspections, statutory limitations on public disclosure of parts of the reports and other matters related to the reports.

The statement and the reports are available under Inspections at www.pcaobus.org/Inspections/.