In its first Big 4 inspection report for 2010, the Public Company Accounting Oversight Board gave Deloitte & Touche a long list of audit issues to investigate and correct.

The PCAOB spent an entire year, October 2008 to October 2009, camped out at the firm’s headquarters and 30 of its 69 U.S. offices to pore over 73 audits. The PCAOB, not Deloitte, determined which audits would be inspected, following a risk-based approach to search out audits that are most likely to have problems.

Inspectors ultimately called out 16 audits to flag failures related to some of the most tenuous areas in accounting and financial reporting today—goodwill and long-lived asset impairments, deferred tax assets, valuations, business combinations, contingent liabilities, derivatives, and cash flow classifications. Many of those areas require significant judgment under current accounting rules, and economic circumstances have only heightened the tension and scrutiny.

In its written response to inspectors’ findings, Deloitte made no attempt to agree or disagree with the inspection conclusions. “We have evaluated the matters identified by the board’s inspection team for each of the issuer audits … and have taken actions as appropriate,” the firm said. “None of our reports on the issuers’ financial statements was affected.”

It hasn't been common practice for the PCAOB to disclose the number of audits that were subject to inspection, but PCAOB spokesman Colleen Brennan said it will be a regular data point in inspection reports going forward. "It is part of the board's effort to provide greater transparency," she said. Reports for smaller firms have routinely specified the number of audits that were studied by PCAOB's inspectors.

The PCAOB report says inspectors noted an unspecified number of instances where Deloitte failed to perform the correct audit procedures or failed to identify or appropriately address errors in the application of Generally Accepted Accounting Principles, including some that appeared to be material. The 16 audits discussed in greater detail represented situations where inspectors said the failures were of such significance it appeared the firm did not obtain sufficient evidence to support its opinion on financial statements or internal control over financial reporting.

In the audit of “Issuer D,” for example, the PCAOB said Deloitte failed to adequately test the valuation of the company’s inventory and investments in unconsolidated entities whose primary assets were investments. “The issuer recognized impairment charges during the year that totaled approximately 24 times the firm’s materiality level,” the PCAOB wrote. Deloitte identified impairment as a risk, but a significant portion of the investment inventory was excluded from impairment testing, the PCAOB said.