Crowe Horwath, the last of the top eight accounting firms to have its 2010 audit inspection report published, took the same lashing as its counterparts with a significant increase in the number of audits criticized by inspectors.

Two years after 2010 inspections were performed, the Public Company Accounting Oversight Board published its report on Crowe's audit work finding fault with eight of the 13 audits selected for inspection. By comparison, inspectors criticized only two of the 13 Crowe Horwath audits that they inspected in 2009, and only one audit in 2008. The PCAOB had no comment on why it took two years to publish the report.

Crowe's 2010 report outlines the same audit-by-audit summary of inspectors' concerns found in other reports, focusing on many of the same issues that cropped up across all firms in 2010. Among the eight audits criticized, most comments revolve around allowances for loan losses, impairments, and over-reliance on third-party pricing services for establishing fair values.

The PCAOB report says deficiencies included failures to identify or properly address financial statement misstatements, including failures to comply with disclosure requirements, as well as failures to perform certain audit procedures. Inspectors noted that in some cases, the failure stems from inadequate documentation. The report says Crowe issued a revised opinion on one audit report after inspectors unearthed problems with the audit of internal control over financial reporting.

The firm says in its response to the inspection findings that it is committed to quality auditing and has designed its quality control and monitoring systems to drive improvement. Crowe says it took actions to address each matter raised in the inspection report, including providing more documentation in audit files to more completely describe procedures, evidence, and conclusions. “We remain committed to continual improvement in our audit practice and making responsive changes in areas identified by the PCAOB for improvement, and look forward to further dialogue towards the shared goal of audit quality,” the firm wrote.

Among the top eight audit firms that are inspected annually by the PCAOB, inspection findings jumped dramatically from 2009 to 2010. The ratio of failed audits to the total number of audits inspected more than doubled at some firms, like Crowe. The eight major firms that are inspected annually include Ernst & Young, KPMG, PwC, Deloitte & Touche, Grant Thornton, BDO USA, McGladrey & Pullen, and Crowe.

Audit experts have said companies can expect auditors to push for more audit procedures in tricky, judgment-laden areas of accounting and more documentation in response to the latest inspection findings. Experts say inspectors are looking for more evidence that auditors are truly challenging management assertions with a skeptical mindset, and they're looking for more audit procedures around anything that involves estimates or assumptions, such as fair value measurements, impairments, allowances for doubtful accounts or loan losses, and others. PCAOB Chairman James Doty has said the 2011 inspection findings, yet to be published, will carry a similar theme to the 2010 findings.