What’s going on in the big firms? Part II. – Time pressures affect small firms too.

Background – Previous post mentioned the PCAOB found deficiencies in 12 of 52 engagements at KPMG and in 28 of 71 engagements at PwC.  Deloitte is publicly arguing with PCAOB.

Two questions:

1. What is the underlying pressure causing the high number of deficiencies and some substandard engagements?
2. Why does that matter to those of us in small firms?

I need to start with the second question. Why do their apparent audit quality issues matter to us?

If the big firms get in trouble, the pushback against them will affect all of us.  When the new regs, expanded liability exposure, and growing list of audit requirements hit them, it will hit us too.

On a more practical basis, there is more public information available about them than any other firms.  As a result we can learn from them. 

That’s what this series of posts is trying to do – learn from their troubles so we maybe, possibly, just might avoid seeing our name in the national media.

On the first question, the issue of what is causing the problem audits, may I be so bold as to suggest there is a collision between two factors?  Since this is my blog, I guess that I can be that bold. 

I perceive those two factors to be present in all CPA firms, even if on a smaller scale.  Thus, we can learn if we want.

The first factor is time pressure.

The second factor is complexity.

From other reading I’ve done, including the post from Ms. McKenna discussed earlier and a variety of discussions at the Going Concern blog, there continues to be severe timing and budget pressures on audits in the Big 4 world.  It has been a very long time since I was in that world, but it doesn’t sound like anything has changed.

The presence of hard deadlines, huge turnover, very tight budgets, and huge pressure to eat time are a daily fact of life.

Those time pressures exist in small firms as well.  Not as extreme perhaps, but still real. None of my colleagues are going to argue with that. There’s never enough time to get everything done.

So the time pressure factor is present in all firms. Next, discussion of complexity. It doesn’t just exist in the big firms on big audits.