Deloitte & Touche LLP partners and staffers failed to make financial disclosures required to ensure the independence of their audit work, according to new details from the Big Four firm’s 2018 audit regulatory inspection.
Deloitte also didn’t fix these problems quickly enough, the Public Company Accounting Oversight Board said in expanded audit inspectionreport released Tuesday. The regulator doesn’t release the typically confidential quality control review findings unless firms don’t correct problems within 12 months of the original report date. The original report was published in April 2020.
Deloitte said it was “intensely” focused on strengthening its quality controls related to reporting personal financial holdings.
“We are deeply committed to safeguarding our independence, which forms the core of the public trust that the markets place in the external audit function,” Deloitte said in a statement.
In audits conducted during the 12-month period ending Aug. 31, 2018, Deloitte identified that 26% of partners and principals and 38% of managing directors and managers it checked had not reported their required financial relationships, the PCAOB said.
Audit firms’ internal policies usually require auditors to make financial disclosures to ensure that there are no questions about auditor independence. Under PCAOB rules, independence is considered impaired if an auditor has a financial interest in an audit client.
“These high rates of non-compliance with the firm’s policies, which are designed to provide compliance with applicable independence regulatory requirements, provide cause for concern, especially considering that these individuals are required to certify on a semi-annual basis that they have complied with the firm’s independence policies and procedures,” the PCAOB wrote in its expanded report.
The regulator in October made public similar findings of failures to report personal financial relationships at fellow Big Four firm Ernst & Young LLP. In December, the PCAOB released expanded inspection reports for BDO USA LLP’s 2016 and 2017 inspections, saying the firm wasn’t skeptical enough of corporate managers and that the firm failed to properly supervise audits.
The PCAOB in November issued for public comment a proposal calling for an overhaul of its quality control requirements, which cover ethics, training, staff assignments, client acceptance, and other areas meant to ensure that auditors provide effective, independent checks on their clients’ financial reporting—and ultimately protect investors.