The regulator of corporate auditors said on Thursday that the U.S. arm of global accounting firm Ernst & Young failed to fix quality control problems found in earlier reviews.
The report from the Public Company Accounting Oversight Board (PCAOB) is a blow for the firm, which markets itself as a global leader in audit quality.
It followed the PCAOB's 2009 inspection of 58 Ernst & Young audits. The inspection led the watchdog to criticize how the firm audited clients' estimates of numbers key to the accuracy of their clients' financial statements.
Problems were found with Ernst & Young's evaluation of the accuracy of clients' estimates of asset impairment and the size of reserves companies took against issues such as environmental problems and expired inventory, among other things.
The PCAOB also raised concerns about the supervision of auditors, their professional skepticism, and Ernst & Young's evaluation of areas posing fraud risk.
An Ernst & Young spokeswoman did not take issue with the PCAOB's findings and praised the inspection process as useful. The firm pledged to continue to work cooperatively with the board to improve the quality of its audits.
Ernst & Young has decided not to appeal the decision to the U.S. Securities and Exchange Commission, as is its right, according to the PCAOB report.
Two other Big Four audit and accounting firms -- PricewaterhouseCoopers and Deloitte & Touche -- have received similar criticism in earlier PCAOB reports.
(Reporting by Nanette Byrnes; Editing by Kevin Drawbaugh and Sofina Mirza-Reid)