Audit regulators are seeing the same kinds of problems in audits after their 2013 inspections that they've seen in recent years, although its too soon to say if the frequency of audit failures has changed.

The top three areas of audit deficiencies discovered in 2013 inspections include internal controls over financial reporting, audit procedures around accounting estimates, and auditor consideration of the risks of material misstatements, said Helen Munter, PCAOB director of inspections and registrations, at a national accounting conference. “When we look at the statistics for 2013, they are concentrated in the area of testing of controls,” she said. Inspectors see too many instances where auditors fail to test important controls or fail to probe deeply enough into management review controls, she said.

As for whether firms have reduced the overall number of audit failures, however, the data isn't yet clear. “It's too soon to call,” said Munter. Anecdotally, inspection results suggest perhaps improvements in some areas, but it's too soon to say definitively. She acknowledged firms have made significant investments in improving their audits in many of the key areas inspectors have flagged in recent years, but that it takes time to see the fruit of those efforts, she said.

PCAOB inspection reports for 2012 showed failure rates among the Big 4 firms ranging from a low of 25 percent of all audits inspected at Deloitte to 48 percent at EY. For Deloitte, that was a significant improvement over the 41.5-percent failure rate at Deloitte in 2011, but an increase from 35.7 percent at EY. The big spike in audit failure rates occurred from 2009, when failure rates across the eight largest firms ranged from 8.6 percent to 24.2 percent, to 2010, when failure ranged from 20.6 percent to 61.5 percent. Firms have forewarned companies that PCAOB inspection findings are driving the issues auditors will raise during their year-end audit work.

The PCAOB has published a general report explaining concerns around internal control. Based on 2010 inspections, the board called on firms to make improvements in identifying and testing controls that are intended to identify the risk of material misstatement and to better scrutinize management review controls. The report also reminded auditors to get better evidence on roll-forward periods, better scrutinize system-generated data, and pay closer attention to its reliance on the work of others.