Audit firms that handle 100 public companies or fewer are having trouble verifying fair value measurements and the impairment of intangible and long-lived assets, reveals a new report from the Public Company Accounting Oversight Board.
Overall, 44% of the audit firms inspected during the 2007-2010 period had at least one "significant audit performance deficiency." While the rate of deficiencies declined, it held steady during 2011.
For instance, an audit firm did not look beyond the client’s own documentation concerning the impairment of long-lived assets. It should have tested the assumptions and methodology used by the client and also corroborated the valuation using independent sources, says the report.
Not only small audit firms have trouble with these issues. In a previous report, the PCAOB found that three of the largest audit and accounting firms are also having trouble testing for fair value measurements (see the January 3 BVWire).