US watchdog warns on auditor failings The US's top auditing firms are failing to adequately sign off on some companies" accounting controls, the country's industry watchdog has warned in a report. Auditing firms such as Deloitte & Touche, Ernst & Young and PwC are required to approve companies" so-called "internal control over financial reporting" (ICFR) when they look over company statements. However, the Public Company Accounting Oversight Board said on Monday that almost one in six of the firms" audits into internal controls did not do enough work to sign off company accounts. About 15 per cent of the 309 audits examined by the board "failed to obtain sufficient audit evidence to support their ICFR audit opinions," the board said in a report that mainly looked at 2009 audits. For 2010 audits, which have yet to be completed, that percentage climbed to about 22 per cent. "If auditors don't get the internal control piece right it is very likely that they will not get the financial statement audit right," Jeanette Franzel, PCAOB board member, said in a press conference. Some 82 per cent of the more than one-fifth of 2010 internal control audits that failed to gather enough evidence also failed to sufficiently support financial statement audit opinions, the watchdog said. The PCAOB's inspectors found a range of auditor shortcomings including failing to test the way companies estimate the "mark to market" value of their financial instruments - an area that would be of particular relevance for US banks. "For example, inspections staff identified instances where firms did not identify and sufficiently test controls over the inputs that the issuer used to value hard-to-value financial instruments," the PCAOB said in the report. It added that the auditors also failed to sufficiently test companies" internal controls over pension plan assets. The inspections included audits by BDO Seidman, Crowe Horwath, Deloitte, E&Y, Grant Thornton, KPMG, McGladrey and PwC. "All registered firms should review this report and consider whether the auditing deficiencies that the board has observed could manifest themselves in their practices," the PCAOB said in the report, which was the watchdog's first since providing updated guidance on ICFR audit requirements in 2007. Auditors were widely criticised for failing to spot some of the warning signs on financial companies" balance sheets in the run-up to the financial crisis. Some institutional investors are now leading a push to reform the relationship between big accounting firms and their clients in Europe and the US. The PCAOB is also exploring the possibility of introducing changes to the way audits work.