Audit regulators have rapped the knuckles of EY and Grant Thornton by republishing old inspection results with previously concealed criticisms of the firms' quality control practices now exposed.

The Public Company Accounting Oversight Board republished EY's 2010 inspection report and two of Grant Thornton's reports from 2008 and 2009 to publicize instances where the board's quality control criticisms were not addressed to the board's satisfaction within the one-year period that is allowed in inspection rules.

In EY's case, the board says the firm was not properly performing its internal engagement quality reviews and did not have adequate controls to assure auditors were exercising adequate skepticism. The report says inspectors found four cases during that inspection cycle where engagement quality reviewing partners were not appropriately evaluating significant judgments and related conclusions, nor were they sufficiently rigorous. With respect to skepticism, inspectors said they found five audits where auditors failed to adequately consider new or contrary evidence that would have affected management estimates, suggesting the firm was too lax in demonstrating skepticism, a commonly aired concern of the PCAOB's across all the major firms.

EY attached a statement to the updated inspection report acknowledging and addressing the newly revealed findings. “We have taken substantial remedial actions with respect to both matters, including significantly enhancing our policies and practices in the two areas noted,” the firm said. “This includes providing our audit professionals with new audit tools, additional training and expanded technical guidance.” In a separate statement, an EY spokesman said the firm is committed to high quality audits and respects the PCAOB's process.

In Grant Thornton's 2008 report, the board says the firm also struggled with professional skepticism. “The nature of many of the reported audit deficiencies provides cause for concern whether the firm applied sufficient professional skepticism when performing audits,” the board wrote. The report also says the firm  didn't adequately supervise auditors, and the firm had difficulty with auditing accounting estimates. In the 2009 report, the board says the firm didn't have adequate quality controls to assure proper testing of internal controls or proper evaluation of management's fair value measurements or other estimates.

Grant Thornton also attached a letter to the expanded inspection report indicating it has continued to work toward improvements beyond the one-year window of time given in Sarbanes-Oxley for privacy to correct quality control concerns. “While we took actions that we believed at the time were sufficient and responsive to the matters in the respective inspection reports, we acknowledge the Board's determinations and accept that additional actions may have been warranted in those areas now being published,” the firm wrote. In its letter and in an additional statement, Grant Thornton said it continues to work toward audit quality improvements and has been given an all clear by the PCOAB on any quality control concerns that were raised in its 2010 inspection.

In all the subsequent inspection reports, the PCOAB says the firms did not seek a review of the quality control findings by the Securities and Exchange Commission. It also notes the publishing of the report is determined appropriate based only on the firm's progress remediation control problems in the 12 months following the original report date. “It is not a broad judgment about the effectiveness of a firm's system of quality control compared to those of other firms, and it does not signify anything about the merits of any additional efforts a firm may have made to address the criticisms after the 12-month period,” the board wrote.

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