BDO USA is the latest audit firm to take criticism from the Public Company Accounting Oversight board, getting poor marks on 26 percent of the audits studied during its 2010 inspection.

The failure rate is in the same neighborhood as that for Big 4 firms in the latest round of inspections, and on par with the firm's own performance the year before. Big 4 failure rates ranged from a low of 20 percent for Ernst & Young to a high of 45 percent for Deloitte during the same inspection cycle – representing a significant increase in failed audits from prior years. In BDO's 2009 inspection report, the PCAOB found fault with 24 percent of the audits it inspected.

At BDO, inspectors visited the firm's offices in New York and Chicago, its information management center in Grand Rapids, Mich., and 13 additional practice offices. Inspectors called out concerns on eight of the 31 audits they inspected. Inspectors said deficiencies focused on failures to identify or properly address financial statement misstatements or faulty disclosures. Inspectors also said they were left to conclude in some cases that the firm failed to perform a particular procedure, even if it claimed to have done so, because it was not documented.

The report cites many of the same issues that commonly crop up in inspection reports, such as revenue recognition, goodwill impairments, long-lived asset impairments, and fair value measurements. The report also notes the firm failed to adequately challenge management's assumptions behind an inventory reserve calculation, and it failed to properly assess a valuation of customer receivables and payables when 74 percent of the firm's confirmation requests to third parties were not answered.

In its written response to the inspection included to the report, BDO says the firm evaluated each issue raised by inspectors and performed additional procedures as necessary. “None of the matters identified by the PCAOB or the results of procedures subsequently performed impacted our previously issued reports on the financial statements,” the firm wrote.

BDO is the first of the “tier two” firms to see its 2010 report published. The report addresses inspections of 2009 financial statements that took place from August through December 2010. The final report was published March 5, although it is dated Jan. 31, 2012. Reports are still pending for Crowe Horwath, Grant Thornton, and McGladrey & Pullen. Their last reports were published in the summer of 2010.