Accounting

PCAOB sees audit deficiencies leveling off at largest firms, but problems remain

Published

5 months ago

August 15, 2024

The Public Company Accounting Oversight Board released inspection reports for all 2023 annually inspected firms Thursday, including the six U.S. Global Network Firms.

The timing came months before the reports have been released in recent years thanks to ongoing efforts to accelerate the release of reports.

The PCAOB inspection reports came accompanied by a new staff Spotlight publication, offering an overview of staff observations from the 2023 inspections. Staff observations include the fact that while overall deficiency rates continued to increase in the aggregate, with 46% of the engagements reviewed having at least one Part I.A deficiency, “we have begun to see the aggregate deficiency rate at the Big Four firms level off, as well as improvements in the deficiency rates at several of the other annually-inspected firms.” The Spotlight report also explores how outliers influence the overall average, among other observations.

For example, the report on BDO USA seems to stand out with an 86% Part I.A audit deficiency rate. Twenty-five of the 29 audits reviewed by the PCAOB in 2023 were included in Part I.A of the report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and/or substantive testing of revenue and related accounts, inventory, and business combinations.

Grant Thornton had a 54% Part I.A deficiency rate. Fifteen of the 28 audits reviewed by the PCAOB in 2023 were included in Part I.A of this report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and/or substantive testing of revenue and related accounts and inventory.

Among the Big Four, for Deloitte & Touche LLP, 12 of the 56 audits reviewed by the PCAOB in 2023 were included in Part I.A of the report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and/or substantive testing of revenue, inventory, investment securities, insurance-related liabilities, and allowance for credit losses/allowance for loan losses. That translated into a 21% Part I.A audit deficiency rate.

At PricewaterhouseCoopers LLP, the Part I.A deficiency rate was the lowest among the Big Four at 18%. Ten of the 57 audits reviewed by the PCAOB in 2023 were included in Part I.A of the report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and/or substantive testing of revenue and related accounts and goodwill and intangible assets.

“When we look at the U.S. Big Four firms (this excludes their non-U.S. affiliates), which as of December 31, 2023 collectively audit approximately 80% of the market capitalization, aggregate Part I.A deficiencies held steady at 26% in 2023 after previously jumping from 12% in 2020 to 16% in 2021 and 26% in 2022,” said the report. “Similarly, the percentage of audits reviewed with multiple Part I.A deficiencies was nearly stagnant, at 21% in 2022 and 20% in 2023, after previously jumping from 9% in 2020 to 13% in 2021 to 21% in 2022. Aggregate Part II criticisms at the U.S. Big Four firms also fell for the first time in three years.”

At Ernst & Young LLP, 22 of the 59 audits reviewed by the PCAOB in 2023 were included in Part I.A of the report due to the significance of the deficiencies identified. The identified deficiencies mainly related to the firm’s testing of controls over and/or substantive testing of revenue and related accounts, business combinations, and inventory. That translated into a 37% Part I.A deficiency rate.

At KPMG LLP, 15 of the 58 audits reviewed in 2023 were included in Part I.A of this report due to the significance of the deficiencies identified. The identified deficiencies primarily related to the firm’s testing of controls over and/or substantive testing of investment securities and revenue and related accounts. That translated into a 26% Part I.A audit deficiency rate.

The PCAOB also published new charts on its website illustrating much of the data in the U.S. GNF and U.S. annual Non-Affiliate Firms (NAF) inspection reports for the first time as part of its ongoing efforts to increase transparency in inspection data and make it easier for stakeholders to understand and compare inspection results both across firms and over time. The charts build on the May 2023 transparency improvements for inspection reports and the July 2023 release of new features allowing PCAOB website visitors to easily filter and compare thousands of audit firm inspection reports.

Some of the highest rates at these firms included B F Borgers CPA PC, which had a 100% Part I.A audit deficiency rate and has been suspended from public audits. Marcum LLP, which was recently acquired by publicly traded CBIZ, had an 81% Part I.A audit deficiency rate, in part due to its heavy reliance on the SPAC market for audits. Baker Tilly US had a 67% Part I.A audit deficiency rate. At Moss Adams LLP, there was a 42% Part I.A audit deficiency rate. WithumSmith+Brown, PC had a 40% Part I.A audit deficiency rate. On the low side, Cohen & Co., Ltd. had an 11% Part I.A audit deficiency rate, and Crowe US LLP had only a 7% Part I.A audit deficiency rate.

“These inspection results point to some small signs of movement in the right direction,” said PCAOB Chair Erica Williams in a statement. “Still, overall deficiency rates are unacceptable, and firms must do better. Now is the time to double down on efforts to improve and deliver the audit quality investors deserve.”

“Making inspection information accessible and actionable for PCAOB stakeholders is a top priority and a means to improve audit quality,” said Christine Gunia, director of the PCAOB’s Division of Registration and Inspections, in a statement. “We will continue to search for new ways to bring our insights to investors, audit committees, and others.”

Accounting

Citrin gets new PE owner as Blackstone buys New Mountain’s stake

Published

1 hour ago

January 7, 2025

Business Finance News

Citrin Cooperman announced today it will receive a significant investment from Blackstone, the world’s largest private equity firm, which will acquire a majority stake in the firm from New Mountain Capital.

The deal is the first instance of an accounting firm to transfer private equity ownership from one group to another in the U.S. Terms of the transaction were not disclosed.

“We are excited to have reached an agreement for Blackstone to invest in Citrin Cooperman as we enter our next chapter of growth,” Citrin Cooperman CEO Alan Badey said in a statement Tuesday. “Blackstone will help us make additional investments in expanded service offerings and technology as we deliver on our continued commitment to best-in-class firm culture and providing an exceptional client experience. We thank New Mountain for their years of partnership in helping to build and support our business.”

Allan Koltin, CEO of Koltin Consulting Group, who advised on the deal, commented: “For many in the profession, the biggest question was whether something like this could ever happen, and my belief is there will now be many other transactions like this in the future. Kudos to Citrin Cooperman, New Mountain Capital and Blackstone on making history today.”

New Mountain first acquired a majority interest in New York-based Citrin Cooperman in April 2022, fueling a wave of mergers and acquisitions at the firm. Two years later, New Mountain took a majority stake in Top 10 Firm Grant Thornton — marking the biggest PE deal to date in the accounting field.

“We are proud of our successful partnership with Citrin Cooperman, and we thank the management team, partners and staff of Citrin Cooperman for all we have accomplished together over the last three years,” Andre Moura and Nikhil Devulapalli, managing directors at New Mountain, said in a statement. “We look forward to seeing Citrin Cooperman continue to thrive for the benefit of all its clients and stakeholders.”

“The Citrin Cooperman partners and staff have done an exceptional job making the firm a leader through an unwavering commitment to excellence and client service,” Eli Nagler, a senior managing director at Blackstone, and Kelly Wannop, a managing director at Blackstone, said in a statement. “We are excited to invest in the business to help it continue to provide the highest quality offerings moving forward.”

Deutsche Bank Securities is serving as financial advisor, and Kirkland & Ellis and Gibson, Dunn & Crutcher are serving as legal advisors to Blackstone. Guggenheim Securities is serving as lead financial advisor to New Mountain and Citrin Cooperman. Koltin Consulting Group is serving as an additional financial adviser to both parties. Simpson Thacher & Bartlett, Zukerman Gore Brandeis & Crossman and Hunton Andrews Kurth are serving as legal advisers to New Mountain and Citrin Cooperman.

Accounting

Five trends that will redefine finance and accounting in 2025

Published

2 hours ago

January 7, 2025

Business Finance News

“Accounting is the best place to start because it’s the purest form of finance,” wrote Robert Kiyosaki, author of the Rich Man Poor Dad series of personal finance books. “You can’t fool it; it’s empirical.”

This insight resonates deeply in today’s business environment, where organizations must navigate macroeconomic uncertainties, technological disruptions and transformational opportunities. Amid these buffeting currents, finance and accounting have evolved from a number-crunching function to a strategic and consultative one, playing three critical roles — safeguarding assets, streamlining operations and influencing future growth. As we move into 2025, five key trends will define the F&A landscape and its ability to drive strategic value.

Accounting

Kacee Johnson departs CPA.com | Accounting Today

Published

2 hours ago

January 7, 2025

Business Finance News

Kacee Johnson, CPA.com’s vice president of strategy and innovation, announced that she has ended her tenure as a full-time employee there.

Johnson, who has been in her position for six-and-a-half years, said on LinkedIn that she officially stepped away on Dec. 31.

“The past 6.5 years have been nothing short of transformative. I am deeply grateful to have been part of such a visionary organization that consistently pushes the boundaries of innovation in the accounting & finance profession,” she said in her post.

In an email she said that the timing was right for her to pursue other interests she is passionate about. However, while she is stepping away from her position, she plans to stay involved and collaborate with the AICPA and CPA.com on strategic initiatives. When asked about specifics in an email, Johnson said she will still be very involved in the AICPA/CPA.com Startup Accelerator program (which she said was the most rewarding part of working at CPA.com) and serve as an overall strategic advisor to the organization working on key initiatives like the AI Symposium and Digital CPA.

In her goodbye message on LinkedIn, she thanked the AICPA leadership for helping her grow as a professional, and gave particular thanks to her research team, saying they are the true embodiment of change makers.

Regarding her immediate plans, Johnson told Accounting Today she plans to take a few months to reset and invest in some personal development interests. She added that she also completed her NACD Corporate Director certification and has been accepted to the Harvard Business School’s Executive Program on Private Equity and Venture Capitalism for the first quarter of 2025.

When asked about what her proudest achievement was during her tenure, she pointed to the AICPA Town Hall.

“I’m most proud of being part of the team that developed and produced the AICPA Town Hall. It’s inception was at the beginning of COVID; so many practitioners needed guidance on how to support clients and navigate all of the uncertainty. To see what the Series has grown into is nothing short of incredible,” she told Accounting Today.

Johnson joined CPA.com in 2018 as a strategic advisor before, in 2021, becoming senior director of strategy and innovation and then, in 2022, vice president of strategy and innovation. Prior to her joining CPA.com, she was the founder of accounting-focused tech consultancy firm Blue Ocean.

Accounting Today named Johnson a “One to Watch” in 2018 when she first joined CPA.com. She has since been named as one of Accounting Today’s Top 100 Most influential People in 2019, 2020, 2021, 2022, 2023 and, most recently, 2024.

Among other accomplishments, she was a major force behind CPA.com’s generative AI toolkit. Johnson has identified artificial intelligence as one of the key issues facing the profession, mentioning it as a vital matter in both her 2023 and 2024 survey responses. She has also expressed concerns about a certain polarization and cultural divide she has observed within the profession between firms where technology is an asset that drives value and firms where it is viewed merely as an operational expense. She has also expressed some skepticism of AI leading to a technological singularity that fundamentally alters human civilization and our conception as the dominant intelligence on Earth.