Nearly two years after it began inspecting McGladrey in 2011, the Public Company Accounting Oversight Board published its report saying half of the audits it checked were deficient.

The PCAOB inspected 16 audits at McGladrey from August 2011 through December of that year and found problems with eight of the audits, in some cases numerous problems in a single audit. Many of the problems related to revenue recognition, allowances for loan losses, accounts receivable, taxes, inventory, and internal control over financial reporting.

In terms of the failure rate, McGladrey's 2011 report was a little worse than the 2010 report, where PCAOB inspectors checked 19 audit files and found problems with 9. In one case, follow-up based on the PCAOB's 2011 inspection finding led to a change in a company's accounting practices, the PCAOB said.

McGladrey said the firm has taken actions as appropriate under auditing standards to address the deficiencies called out by the PCAOB, including performing additional procedures and adding documentation to its work papers. “We believe the investments we have made and are continuing to make to audit processes and quality controls are resulting in improved audit quality,” the firm wrote in its letter to the PCAOB.

Audit reports across all major firms showed a marked increase in failure rates from 2009 to 2010 and showed no improvement for most firms from 2010 to 2011. Crowe Horwath remains the only firm in the Big 4 or second tier of global firms whose 2011 inspection report is still unpublished.

The PCAOB recently began offering a first view into 2012 inspection reports for the largest firms with the publishing of Deloitte's 2012 inspection results. The firm drew inspector criticism for 13 of the 52 audits examined for a failure rate of 25 percent, an improvement over rates of 42 percent in 2011 and 45 percent in 2010.

The PCAOB's inspection process follows a risk-based approach, so inspectors are targeting audit files where they consider problems to be most likely. As such, the board cautions against generalizing failure rates to the entire collection of audit work.

The board flags audit deficiencies when it believes a failure is so significant that it appears auditors have not obtained adequate evidence to support their audit opinions. That might include cases where the audit work was incomplete or not properly conducted, cases where financial statement information was contradicted by other available evidence, or cases where audit conclusions on material issues were based on management's views that auditors accepted without adequate verification.