Accounting Paper on PLAOB Inspection reports and Registered Public Accounting Firms- the Importance of Audit Evidence

PLAOB Inspection reports and Registered Public Accounting Firms- the Importance of Audit

Evidence

Question1: Comparison of Audit Reports

Auditing of a company’s financial statements is an important process in the capital markets as it provides the basis for making investment and lending decisions. This paper reviews the auditing of Deloitte & Touche LLP and Kaufman, Rossin & Co by the Public Company Accounting Oversight Board (PCAOB), which is the body mandated by law to oversee the work of public accounting firms (CAQ 2).

Both companies were audited by the PCAOB inspection team in the year 2012, although the length of the primary procedures shows great variations. Primary procedures atDeloitte & Touche LLP spanned the period of October 2011 through February 2013(PCAOB  2) whereas that at Kaufman, Rossin & Co spanned a period of four days, between August 20, 2012 to August 24, 2012 (PCAOB 1). Both companies were audited in two major areas, the audit engagements for both organizations and auditing standards in the case of Deloitte and control systems for Kaufman.

Kaufman, Rossin & Co seems to be the company that received the more favorable inspection report than Deloitte. This can be seen from the contents of the reports; the Deloitte report is much more detailed and outlines the deficiencies of the company’s engagements with every issuer. The Kaufman report on the other hand is short detailed and indicates that the inspection team found no issues that could be deemed to have violated the standards (PCAOB, 2). The report further shields criticisms of the firm’s quality control procedure from the public section.

Question 2:Preferred Audit Company

Kaufman, Rossin& Co would be a better choice for an auditing company compared to Deloitte & Touche LLP. This because the former company displays a superior audit report than the later. Its public report shows no deficiencies implying that the company’s auditing procedures comply with the expected PCAOB standards. Important to note also is the fact that Kaufman has fewer audit engagements implying that it would do a thorough job than Deloitte with a lot of audit engagements (PCAOB, 3).

Privacy of Quality Control System Defects and Criticisms

Question 3 (a)

A standard audit report usually comprises of four sections. Part I and part IV are often available in the public section of the report, while parts II and III only appear in the nonpublic part of the report (CAQ, 9). The nonpublic part among others information contains a firm’s quality control system. This section is often given confidential treatment since it contains company information that could be maliciously used by third parties if made public. This information could also expose the company secrets to its competitors and thus lower its competitive edge. Other than this, a company quality control system may contain organizational flaws that could lower investor confidence and affect its operations (Cao, 3).

Question 3 (b)

In my opinion, the details of a company’s defect and criticism of its quality control system should remain private and never disclosed to the public. This is because, as earlier stated, quality control system defects could give competitors a competitive edge over it and affect its general performance (Cao, 3). In addition, it should also be noted that deficiencies in a company’s quality control system do not necessarily reflect the company’s overall performance and making them public could possibly create a wrong public impression of it. As also noted by the PCOAB, the inclusion of such deficiencies in the report usually does not serve to assert that the organization has failed to address these issues but rather a reminder of areas that need to be looked at. On this basis, it is important the quality control defects and criticism remain private and used for the benefit of the organization alone(Cao, 6).

Works Cited

CAQ. Guide to Pcaob Inspections. Auditing Manual. Washington, D.C.: The Center for Audit Quality (CAQ), 2012.

Cao, Yang. Why Do Firms File for Confidential Treatment?. Working paper, 2011

PCAOB. 2012 Inspection of Deloitte & Touche LLP. Audit Report. Washington, DC: Public Company Accounting Oversight Board, May 2013.

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PLAOB Inspection reports and Registered Public Accounting Firms- the Importance of Audit

Evidence

Question1: Comparison of Audit Reports

Auditing of a company’s financial statements is an important process in the capital markets as it provides the basis for making investment and lending decisions. This paper reviews the auditing of Deloitte & Touche LLP and Kaufman, Rossin & Co by the Public Company Accounting Oversight Board (PCAOB), which is the body mandated by law to oversee the work of public accounting firms (CAQ 2).

Both companies were audited by the PCAOB inspection team in the year 2012, although the length of the primary procedures shows great variations. Primary procedures atDeloitte & Touche LLP spanned the period of October 2011 through February 2013(PCAOB  2) whereas that at Kaufman, Rossin & Co spanned a period of four days, between August 20, 2012 to August 24, 2012 (PCAOB 1). Both companies were audited in two major areas, the audit engagements for both organizations and auditing standards in the case of Deloitte and control systems for Kaufman.

Kaufman, Rossin & Co seems to be the company that received the more favorable inspection report than Deloitte. This can be seen from the contents of the reports; the Deloitte report is much more detailed and outlines the deficiencies of the company’s engagements with every issuer. The Kaufman report on the other hand is short detailed and indicates that the inspection team found no issues that could be deemed to have violated the standards (PCAOB, 2). The report further shields criticisms of the firm’s quality control procedure from the public section.

Question 2:Preferred Audit Company

Kaufman, Rossin& Co would be a better choice for an auditing company compared to Deloitte & Touche LLP. This because the former company displays a superior audit report than the later. Its public report shows no deficiencies implying that the company’s auditing procedures comply with the expected PCAOB standards. Important to note also is the fact that Kaufman has fewer audit engagements implying that it would do a thorough job than Deloitte with a lot of audit engagements (PCAOB, 3).

Privacy of Quality Control System Defects and Criticisms

Question 3 (a)

A standard audit report usually comprises of four sections. Part I and part IV are often available in the public section of the report, while parts II and III only appear in the nonpublic part of the report (CAQ, 9). The nonpublic part among others information contains a firm’s quality control system. This section is often given confidential treatment since it contains company information that could be maliciously used by third parties if made public. This information could also expose the company secrets to its competitors and thus lower its competitive edge. Other than this, a company quality control system may contain organizational flaws that could lower investor confidence and affect its operations (Cao, 3).

Question 3 (b)

In my opinion, the details of a company’s defect and criticism of its quality control system should remain private and never disclosed to the public. This is because, as earlier stated, quality control system defects could give competitors a competitive edge over it and affect its general performance (Cao, 3). In addition, it should also be noted that deficiencies in a company’s quality control system do not necessarily reflect the company’s overall performance and making them public could possibly create a wrong public impression of it. As also noted by the PCOAB, the inclusion of such deficiencies in the report usually does not serve to assert that the organization has failed to address these issues but rather a reminder of areas that need to be looked at. On this basis, it is important the quality control defects and criticism remain private and used for the benefit of the organization alone(Cao, 6).

Works Cited

CAQ. Guide to Pcaob Inspections. Auditing Manual. Washington, D.C.: The Center for Audit Quality (CAQ), 2012.

Cao, Yang. Why Do Firms File for Confidential Treatment?. Working paper, 2011

PCAOB. 2012 Inspection of Deloitte & Touche LLP. Audit Report. Washington, DC: Public Company Accounting Oversight Board, May 2013.

—. 2012 Inspection of Kaufman, Rossin & Co., a Professional Association. Audit Report. Washington, D.C: Public Company Accounting Oversight Board, January 2013.

—. 2012 Inspection of Kaufman, Rossin & Co., a Professional Association. Audit Report. Washington, D.C: Public Company Accounting Oversight Board, January 2013.