Just before the close of the year, the Public Company Accounting Oversight Board released 2011 inspection reports for three of the largest audit and accounting firms: Deloitte, Grant Thornton, and Ernst & Young. From the reports, it appears the audit firms are still having trouble in testing for fair value measurements and/or disclosure related to hard-to-value assets and goodwill.
For example, in the Deloitte inspection report, the PCAOB cites one particular audit in which the firm failed to identify when an issuer inappropriately allocated a portion of the purchase price of a group of assets to goodwill rather than to a definite-lived asset.
In its inspection of Grant Thornton, the board cites an audit for five major deficiencies, including the firm’s failure to test the issuer’s assumptions underlying its projections regarding the value of certain deferred tax assets; it also failed to challenge the issuer’s use of dated financial information to support its forecast when more current, available data would have contradicted the projected growth rate.
Similarly, its Ernst & Young report cites failures to audit the valuation of certain long-lived assets as well as leases and derivative contracts; it also consistently faulted the firm for sufficiently testing an issuer’s internal controls as well as its management projections and fair value measurements.
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