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May 18, 2009

US watchdog picks up mid-tier audit deficiencies

(FREE) US auditors Crowe Horwath and
McGladrey & Pullen have been criticised by the Public Company
Accounting Oversight Board (PCAOB) for deficiencies in their audit
procedures following recent inspections.

The watchdog published its report on its
annual inspection of selected 2008 audits by both firms, noting
lapses in various areas for seven issuers by McGladrey & Pullen
and one issuer by Crowe Horwath.

In the US watchdog’s inspection reports of
large audit firms it is not uncommon for several significant
deficiencies to be highlighted.

The PCAOB said McGladrey & Pullen, the
audit firm affiliated with RSM McGladrey, failed on several
occasions to perform sufficient audit procedures related to the
allowance for loan losses.

Deficiencies in its procedures concerning the
valuation of an issuer’s investment securities and testing the
strength of specific impairment reserves were also highlighted.

The PCAOB said Crowe Horwath had also failed
to design and perform audit procedures to take into account a
deficiency in an issuer’s allowance for loan losses. This led to an
insufficient evaluation of the reasonableness of the issuer’s
allowance for loan losses estimate, the watchdog added.

In a letter responding to the criticisms,
McGladrey & Pullen said none of the inspection comments
resulted in the restatement of financial statements but it had, in
certain instances, performed additional procedures in accordance
with AU 390, Consideration of Omitted Procedures after the Report
Date.

In a response to the report findings, Crowe
Horwath said that although it did not agree with the PCAOB’s
“characterisation” of the audit issue, it had addressed the issue
and provided additional documentation.

The firm maintained that it had reported the
matter to the issuer as a control deficiency but it was not
considered to be a significant deficiency or material weakness.

Crowe also noted that inspection comments can
reflect differences in professional judgments between auditors and
inspectors.

The PCAOB conducts an annual inspection of
each registered public accounting firm that regularly provides
audit reports for more than 100 audit clients as a requirement of
the Sarbanes-Oxley Act.

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