High Standards of Big 4 in US

Regulators still are finding a high level of serious deficiencies in the work of major audit firms, continuing a trend begun last year, a member of the U.S.'s audit-industry oversight panel said.

Most of the Public Company Accounting Oversight Board's 2011 inspection reports of the biggest firms have yet to be issued, but they will show a continued "spike" in audits found to have serious problems, PCAOB member Jeanette Franzel said in a speech in Chicago on Thursday.

In some cases, Ms. Franzel said, the board's inspectors found that auditors gave their clients a clean bill of health even though the audit work wasn't completely or properly conducted, or the company's financial statements were contradicted by other evidence.

Last year, in reports issued on 2010 inspections, "we saw a high level of serious inspection findings, an increase over previous years," and that trend remains in the 2011 reports, Ms. Franzel said. In the reports issued last year, the board found deficiencies in nearly a third of the audits they examined at the Big Four accounting firms—PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLP and KPMG LLP.

The PCAOB conducts annual inspections of the biggest firms, scrutinizing a sample of their audits. The inspections focus on audits that the board believes are at highest risk for problems, so the PCAOB says the results may not reflect how frequently a firm's overall audit work is deficient. The inspections are intended only to evaluate a firm's performance and point out areas for improvement, so offending firms aren't subject to penalties.

PCAOB findings of problems are "to be taken seriously and firms will continue to work on areas that need to be improved," said Cindy Fornelli, executive director of the accounting industry's Center for Audit Quality.

The only Big Four firm with a 2011 report issued thus far is KPMG, in which the PCAOB found deficiencies in 12 out of the 52 audits they examined