On October 24, the Public Company Accounting Oversight Board released three previously nonpublic portions of Grant Thornton’s 2020 inspection report. Board criticisms of a firm’s quality control system appear in Part II of a firm’s inspection report, and, under the Sarbanes-Oxley Act, Part II is nonpublic when the report is issued. If the firm does not, in the PCAOB’s view, satisfactorily address a quality control criticism within 12 months, the Board makes the criticism public.
The three now-public quality control criticisms in Grant’s 2020 inspection report are:
Testing Controls. Grant’s system of quality control does not provide reasonable assurance that the work performed by the firm’s personnel to test controls will meet the requirements of the Board’s auditing standards. In three audits, the inspectors concluded that Grant “did not sufficiently evaluate whether controls that it selected for testing that included a review element operated at a level of precision that would prevent or detect material misstatements because the firm did not evaluate the review procedures that the control owners performed, including instances in which the firm did not evaluate the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved.” In addition, the inspection team “identified instances in which the firm did not identify and test, or sufficiently test, controls over the accuracy and completeness of data or reports used in the operation of controls.”
Reliance on Data or Reports. The firm’s system of quality control does not provide reasonable assurance that the work performed by the firm’s personnel to establish a basis for reliance on company-prepared data or reports will meet the requirements of the PCAOB’s standards. In four audits, the inspection team found that the firm “did not identify and test, or sufficiently test, controls over the accuracy and completeness of certain data or reports that the issuer used in the operation of controls that the firm tested.” In addition, in these four audits, “the firm did not perform procedures to test the accuracy and/or completeness of certain data or reports that it used in its substantive testing, or in the alternative, test, or sufficiently test, controls over those data or reports.”
Supervision of the Audit. Grant’s system of quality control does not provide reasonable assurance that supervisory activities, including engagement partner reviews of audit work, will meet the requirements of the Board’s auditing standards. This finding is based on the inspection team’s identification of deficiencies in five audits that the engagement partner should have identified and appropriately addressed. In each of these audits, the engagement team identified a significant risk, including in some cases a fraud risk, in an area in which the inspection found a deficiency.
The date of Grant’s 2020 inspection report is September 30, 2021. Therefore, the release of these portions of the report indicates that Grant failed to persuade the PCAOB that, as of September 30, 2022, it had satisfactorily remediated these three quality control deficiencies.
Audit committees of Grant clients may want to discuss with their engagement partner how the firm is addressing these matters, changes it has made since the PCAOB’s determination that the deficiencies had not been remediated, and whether the deficiencies might have affected the company’s audit.
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