In the first 2012 inspection report for a major audit firm, the Public Company Accounting Oversight Board flagged 13 of 52 audits as failed at Deloitte & Touche, representing a marked improvement from the year before.

The PCAOB inspected roughly the same number of audits in 2012 as the year before, but called out only 25 percent of them as deficient in 2012 compared with 42 percent in 2011 and 45 percent in 2010. In the latest inspection cycle, the PCAOB says the 13 audit failures described in its report represent instances where Deloitte failed to obtain sufficient evidence to support its audit opinion. In one case where the firm was not the principal auditor but played a support role on behalf of an affiliated audit firm, Deloitte's work failed to fulfill the objectives of its role in the audit, the PCAOB reported.

The PCAOB said it found nine instances in the 13 audits where Deloitte failed in various ways to comply with auditing standards around internal control over financial reporting. The PCAOB published a report late last year detailing numerous ways that all the major firms have stumbled in recent years in their audit work around internal controls.

Deloitte's latest inspection report also indicates the firm failed in five cases to adequately audit accounting estimates and five other instances of failure to properly audit inventories. Other failures were linked to auditing standards around risk, audit evidence, analytical procedures, and confirmations. Only one audit failure was tied to auditing fair value measurements and disclosures, which has been a recurring theme in inspection findings across major firms in recent years.

In a letter attached to the inspection report, Deloitte leaders said audit quality is the firm's highest priority. “We are confident that the investments we have made and are continuing to make in our audit processes, policies, and quality controls are resulting in significant enhancements to our audit quality,” wrote Joseph Echevarria, Deloitte CEO, and Gregory Weaver, chairman and CEO for Deloitte & Touche.

Deloitte's latest inspection report is the first report published for a major firm from the 2012 inspection cycle. Reports for 2010 and 2011 for all the major firms noted significant increases in audit failures compared with reports from prior years, although 2011 reports are still not published for McGladrey and Crowe Horwath. In addition to the summary report on problems with internal control, the PCAOB is preparing to publish an additional report summarizing audit failures broadly across all the major firms.