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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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