Here’s a tricky question for you – who audits the biggest auditors in the world?
And one of the biggest 4 auditors is Deloitte. They audit a large percentage of the Fortune 500, the biggest multinational corporations in the world. So who audits Deloitte?
The specific firm that audits Deloitte may vary from year to year, but they are annually audited by another large accountancy firm, usually another of the ‘Big 4’ (KPMG, EY, or PwC). They are also inspected by the PCAOB (Public Company Oversight Board.
It’s crucial that the main auditors in a thriving economy are audited accurately themselves. This gives everyone confidence in the system, I think you could say.
In this post, I’ll take a look at:
- Who audits Deloitte
- Who inspects their financial statements
- What process the auditing follows
Deloitte is a hugely powerful company, so it’s only right that they are subject to rigorous auditing.
Making sure they are following good-quality accounting and financial procedures has a knock on effect to the wider economy and investors as a whole.
Deloitte is usually audited by another of the ‘Big 4’ firms – Ernst and Young, Price Waterhouse Coopers, or KPMG). How is the accounting firm selected?
Well, it is the decision of the Auditing Board, and then ratified by the Board of Governors.
Deloitte is a global operation. They are active in around 150 countries around the globe. (Source)
They will be subject to different checks in many of the countries they operate in. For example, in the UK they will be inspected by the Institute of Chartered Accountants in England and Wales.
In the United States, they will be subject to a rigorous inspection by the PCAOB…
Inspection By The PCAOB
The PCAOB does inspections of Deloitte in the United States. (Source) The PCAOB is a non-profit organization, that works independently of the Government.
The PCAOB will be checking that Deloitte is following:
- The rules set out by the SEC (Securities and Exchange Commission)
- The regulations set out by the Sarbanes-Oxley Act of 2002
They are responsible for checking that Deloitte is conducting high-quality audits that are:
- Have integrity
Who Are The Public Company Accounting Oversight Board?
The Public Company Accounting Oversight Board was created on July 30th, 2002. (Source)
The PCAOB is entirely non-profit and independent. They regulate and inspect companies in the United States.
The PCAOB was formed largely as the result of several big financial scandals around the turn of the millennium.
There followed an act of Congress, called the Sarbanes-Oxley Act of 2022, and the PCAOB was formed. They are tasked with the job of protecting the public and investors.
They ensure that the financial statements of large corporations and public companies are correct.
They inspect Deloitte, as well as the other ‘Big 4’‘.
The PCAOB is a powerful organization. It is above all else aiming to find:
- Accuracy of financial statements
- Companies are following rules and regulations
Here’s a quick video overview of exactly what the PCAOB are and do:
What Process Is Followed When Deloitte Is Audited? (6 Steps)
The audits of Deloitte are designed to assess the following:
- Deloitte’s systems
- Its policies
- Its procedures for providing auditing services
- Its procedures for providing accounting services
The audit aims to highlight strengths and any areas for improvement, to ensure Deloitte continues to deliver high-quality services to its diverse client base.
An audit typically follows the following 6 steps@
Whoever is selected to run the audit will first come up with a plan of how the audit is carried out to cover all areas
2. Risk Assessment
A bit of a technical one here! The auditor assesses what kind of risk there may in there being material misstatements in Deloitte’s control procedures
The auditor will conduct tests that try to highlight if Deloitte’s quality control procedures are effective. They will interview employees, observe systems and processes, and review documents
They evaluate the results of their testing
The auditor prepares a full written report sharing their findings. They include areas of strength as well as recommendations for improvement.
Deloitte will address the findings, and provide an action plan to address issues. The auditor may potentially follow up in the future to check that corrective actions have been carried out.
How Do The PCAOB Audit Companies?
The PCAOB run both regular and planned inspections, and they are also able to run spot-checks following complaints or concerns that are raised to them.
Inspections are in-depth and usually involve:
- Assessing the firm’s compliance with professional standards
- A full review of the firm’s quality control procedures
- Reviewing a sample of the firm’s audit work
- Interviewing employees
The PCAOB is not to be messed with! They hold some serious powers and sanctions. If they find serious breaches of regulations and rules, they are able to:
- Revoke a firm’s registration
- Impose fines
- Bring actions against violating individuals
What Is The Sarbanes-Oxley Act Of 2002 (That They Are Inspected Against)
The Sarbanes-Oxley Act of 2002 was a response to several high-profile financial scandals in the early 2000s. If you’re old enough you might remember Enron?
Here’s a Youtube video that explains exactly what happened in this scandal:
The Sarbanes-Oxley Act sought to protect investors by improving the legitimacy and accuracy of financial statements of large companies.
The Sarbanes-Oxley Act was set up to protect future investors by improving the accuracy and legitimacy of financial statements for public companies.
It involved the following:
- Whistleblower protection
- Establishing the PCAOB
- Corporate Governance (basically improving the accountability of leaders at big corporations)
- Disclosure requirements (companies are obliged to report risks around their financial performance_
Does Deloitte Audit Themselves?
No, Deloitte does not officially audit itself. Their audit must be carried out by an external provider.
However, Deloitte will of course keep a close eye on its own financial procedures, accounting, and other financial systems. They are uniquely well-placed to do so.
Internal vetting procedures will be looking at:
- Accuracy of systems
- Accuracy of recording processes
- Financial systems and accounting
Who Are Deloitte?
Deloitte was established in the Victorian era in London. Founded in 1845 by William Welch Deloitte, they are a professional services firm. They offer:
- Tax services
- Advice on tax planning and compliance with tax laws
- Audit and assurance services
- Independent auditing of financial statements
- Consulting services
- Advice on strategy, technology, and operations
- Advice on mergers and acquisitions
- Forensic services, such as fraud detection and prevention
The main growth of the company took place in the 20th Century as it expanded internationally out of the UK.
Deloitte is a global leader in professional services and holds a high level of prestige and recognition in the industry.