Friday, May 8, 2009

PCAOB Continues to Bitch-Slap Auditors of Public Companies

McGladrey & Pullen is the latest victim of the PCAOB's wrath. You might recall my post regarding the results for Deloitte.

The reoccurring theme, as far as anyone can tell, is that auditors of public companies really don't do the work they are supposed to do. Everything just appears reasonable, as some of you are quite aware...

Here's an excerpt from the report, courtesy of CFO:

Issuer A: The auditor failed to perform sufficient procedures concerning the valuation of investment securities.
A McGladrey-hired specialist came up with two different fair values of securities that were both lower than the issuer's estimates. McGladrey didn't know why the specialist had changed his or her estimate nor fully grasp the methods and assumptions the specialist had used.

Issuer B: The firm failed to sufficiently evaluate the reasonableness of specific impairment reserves. For one of three large impaired loans used to test the client's overall impaired-loan population, the firm didn't test the sources of data and the reasonableness of assumptions used to make a fair-value estimate.

Issuer E: The firm failed to perform sufficient procedures to test the existence of revenue. In addition, the firm's sample size to confirm accounts receivable was "insufficient to achieve the necessary level of assurance.

I'll translate/opine one at a time:

Issuer A: Fancy-pants specialist came up with two numbers both lower than the issuer and M&P didn't know why the estimate changed or fully understood the methods used or assumptions made by said fancy-pants specialist. I'm going to wildly speculate that the auditors ended up going with the higher valuation anyway. Forget that they can't understand that they don't know what the hell the specialist is doing.

Issuer B: Impaired loan reserves not sufficiently tested for reasonableness. M&P apparently shares notes with Deloitte. That must come in handy during peer review, "Oh, you test this just like us and we came to the same conclusion. Great minds think alike!"

Issuer E: Noted without comment: "Failed to perform sufficient procedures to test the existence of revenue".


PCAOB Knocks McGladrey on Loan-Loss Reserves [CFO]

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