Watchdog Report Raps Ernst, KPMG
By David Reilly
The Wall Street Journal
Friday, January 12, 2007
In its final two inspection reports on 2004 corporate audits
done by the country's biggest accounting firms, the Public
Company Accounting Oversight Board yesterday criticized Ernst &
Young LLP and KPMG LLP for failing to follow accounting rules or
gather sufficient evidence for their judgments in a handful of
The issuance of the reports by the PCAOB brings to a close its
most recent reporting season on its annual inspections of the
Big Four accounting firms -- PricewaterhouseCoopers LLP,
Deloitte & Touche LLP, E&Y and KPMG. PCAOB Chairman Mark Olson
has acknowledged criticisms from investors and members of
corporate audit committees that the agency is taking too long in
getting the reports out and has pledged to try and speed up the
process this year.
The PCAOB is required by law to annually inspect accounting
firms that audit more than 100 public companies, but isn't given
a deadline for issuing a report on the firms.
Those reports, though, are the only public assessment of audit
firms' work available to investors and corporate audit
The agency's reports on E&Y and KPMG, like those issued late
last year, are based on inspections done in 2005 of the firm's
audits of companies' 2004 financial results. In previous years,
annual reports have been issued by November of the year
following an inspection.
The PCAOB singled out 10 E&Y audits for criticism in its report
on that firm, while citing KPMG for deficiencies in 11 audits.
In keeping with the board's policies, the report doesn't
identify the companies that had their audits cited.
In a statement issued last night, E&Y said, "We constantly
re-examine and improve our audit policies and processes, and we
will continue to work closely with the PCAOB to use its findings
to refine and further improve our audits."
KPMG in a statement also issued last night said, "The feedback
we've received from PCAOB inspections has served to enhance
KPMG's audit quality."
Write to David Reilly at