The quality of public company audit is improving—at least according to Public Company Accounting Oversight Board (PCAOB) inspection results.
After year-over-year increases in the audit regulator’s deficiency rates that culminated in Part I.A deficiency rate of 46% during the 2023 inspections cycle, the rate decreased to 39% in 2024, according to a new report that summarizes inspections performed last year.
Part I.A of PCAOB inspection reports identifies any deficiencies that the auditor had not obtained sufficient appropriate audit evidence to support its opinion on the company’s financial statements and internal control over financial reporting.
The deficiency rate for the 2022 inspection cycle for all firms was 40%, up from 34% in 2021, and 29% in 2020.
And Big Four firms also did better in 2024 with 20% deficiency rate. It was 26% in both 2023 and 2022. The firms collectively audit about 80% of the market capitalization.
The aggregate deficiency rate for the Big Four in 2020 was 12%, increasing to 16% in 2021.
The updated data was published on March 31, 2025. The 2024 inspections are largely based on reviews of 2023 audits.
In 2024 the PCAOB inspected 171 firms and reviewed portions of over 800 public company audits. This report does not cover results of broker-dealer audit inspections, which will be released later in the year.
The combined deficiency rate for the six global network firms (GNF) decreased 8% from 34% in 2023 to 26% in 2024.
The rate for the eight annually inspected non-affiliated U.S. firms decreased only slightly from 53% to 52%.
These eight firms are: Marcum LLP; RSM US LLP; Crowe LLP; WithumSmith+Brown, PC; Moss Adams LLP; Baker Tilly US, LLP; B F Borgers CPA PC; and Cohen & Company, Ltd.
A footnote of the report says that the 2024 results are estimates for those eight firms and also reflect the removal of BF Borgers CPA PC, whose public company audit practice was effectively shut down by the SEC for fraudulent audit last year. The results also reflect the addition of a new annually inspected firm, “which will be disclosed when the inspection report for that firm is published.”
Small firms also did better.
“Although the same firms are not inspected year-to-year, we saw improvements at … triennially inspected firms,” the report states.
Smaller firms that are inspected triennially and belong to the global networks also saw improvement with deficiency rate going down 9% from 35% in 2023 to 26% in 2024.
The combined deficiency rates at non-affiliated network firms that are inspected every three years decreased from 67% in 2023 to 61% in 2024.
The improvements are not surprising.
PCAOB Chair Erica Williams in December last year at an AICPA conference said that the inspections staff were seeing “significant improvements” in the aggregate deficiency rate from the largest firms.
“We challenged the audit profession to do better for America’s investors, and these significant improvements demonstrate real progress in protecting investors,” PCAOB Chair Williams today said in a statement. “Still, our work is far from over, and I urge the audit profession to build on this momentum.”
Accounting firms that audit more than 100 public companies are inspected every year. Those that audit fewer are inspected every three years.
While inspection results can be an indicator of audit quality, it should be noted that the PCAOB does not inspect all audits. It selects audits based on risk assessments. The board also selects some audits randomly.
Factors Behind Improvement
The report noted that inspectors have observed that firms worked hard to improve the quality of their audits in various ways.
“Many of these actions were implemented in 2023 and reflected in the results of the inspections we performed in 2024,” the report noted.
For example, the drivers of improvements at larger firms were:
- More in-person work. Firms continued with policies requiring engagement teams to work on-site together for a portion of their work week.
- More focused training. Firms increased the training of less experienced staff.
- More resources. Firms strengthened national office resources dedicated to audit quality.
- Better supervision and review. Firms implemented programs or policies to increase supervision and review.
“While the progress made in 2024 is significant, overall deficiency rates are still high, and firms must continue to improve,” the report states. “We continue to encourage firms to review our Spotlights, which highlight common deficiencies, inspection observations, good practices, and reminders for auditors.”
The PCAOB at the same time issued the 2024 inspection reports for the six GNFs in the U.S.
Big Four Firms:
- Deloitte & Touche LLP –The board reviewed 63 audits and found deficiencies in nine—14% deficiency rate. This is a good improvement from the 21% deficiency rate in 2023, and it is slightly better than 2022 with 17%.
- Ernst & Young LLP—Inspectors scrutinized 64 audits and identified deficiencies in 18 at 28% rate. This is a big improvement from 37% in 2023 and 46% in 2022.
- KPMG LLP —The PCAOB examined 64 audits in 2024 and found problems in 13, which is 20% deficiency rate. The rates were 26% in 2023 and 30% in 2022.
- PricewaterhouseCoopers LLP —The board also inspected 64 audits in 2024 and found that 10 had problems—a 16% deficiency rate. The rate was 18% in 2023, and single digit in 2022 at 9%.
Second-Tier Firms:
- BDO USA, P.C. Inspectors looked at 30 audits in 2024 and found 60% of them to be deficient. This nevertheless represents a significant improvement because it was 86% in 2023. In 2022 it was 66%.
- Grant Thornton LLP —The PCAOB reviewed 27 audits and found faults in almost one-half, or 13 of them, which is 48% rate in 2024. This is still an improvement over the 2023 rate because more than half had deficient audit at 54%. In 2022 the deficiency rate was 31%.
Faster Turnaround
In the meantime, the board under the leadership of Chair Williams has made a priority to issue inspection results more quickly following complaints by investors that the lag time between inspections and the public release of findings was too long.
“Today’s six GNF reports were posted in record time, five months sooner than last year’s results, which were published six months sooner than the year before,” the PCAOB said.
“The rest of the 2024 inspection reports have been published or will be published later this year as they are completed,” the board added. “The staff Spotlight reflects what staff expect to see in those inspection reports based on comment forms issued as part of the inspections process.”
This article originally appeared in the April 1, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.
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