With its 2011 audit inspection report published at long last, it's now clear that Crowe Horwath suffered the highest rate of audit failures among major firms in the 2011 inspection cycle. Inspectors at the Public Company Accounting Oversight Board found fault with 8 of the 13 audits they scrutinized for a failure rate of 61.5 percent. That's more than 10 percentage points higher than McGladrey's rate of 50 percent.

Of the eight major U.S. audit firms -- the Big 4 plus Crowe Horwath, McGladrey, BDO USA, and Grant Thornton -- KPMG fared the best with inspectors with a failure rate of 22.6 percent. The rest of the pack ranged from 35.7 percent for EY and 39.1 percent for BDO USA, to the low 40s for PwC, Deloitte & Touche, and Grant Thornton. 

PCAOB inspectors noted a spike in failure rates in 2010 when firms like EY went from 8.6 percent in 2009 to 20.6 percent in 2010 and Crowe Horwath jumped from 15.3 percent in 2009 to 61.5 percent in 2010. It was two years in a row for Crowe to top the failure rate among major firms and the only firm to exceed 50 percent. 

The PCAOB's 2011 inspection of Crowe pored over audits of 2010 financial statements, finding many of the same problems found across all major firms in recent years. Inspectors criticized the firm's work around the allowance for loan losses in nearly every problem audit, and spelled out numerous instances where the firm didn't properly scrutinize internal controls, valuations, investment securities, impairments, and collateralized debt obligations.

The firm acknowledged the findings in a letter attached to the report. “The PCAOB has publicly emphasized common areas of concern in inspections of the annually inspected firms,” the firm wrote. “Because certain of these topics, particularly internal control over financial reporting, fair value of financial instruments, and the allowance for loan losses, have broad applicability to our issuer clients, we are devoting significant resources to addressing the PCAOB's concerns in these areas of industrywide focus.”

PCAOB member Jeanette Franzel has said the board is starting to see “limited improvements” as it reviews its 2012 and 2013 inspection results internally. Among the major firms, Deloitte is the only firm whose 2012 report has been published so far, and it showed a failure rate of 25 percent, down from 41.5 percent and 44.8 percent the two previous years. Reports for 2013, under the board's current process, are not likely to be published for at least another year or more. Franzel has said the board is starting to think about how it might be able to take advantage of improvements in auditing to alter its inspection process, although she offered no details on what kind of changes might be considered.