China, which is forever talking about cooperation but somehow never actually providing much of it, leads the list. There are eight Chinese firms and another eight based in Hong Kong. In some cases, the board says, it has been able to inspect Hong Kong firms, either because they did not audit mainland companies or because no objections were raised even though they did. In others, the Chinese authorities intervened to prevent inspections.
But for sheer numbers, Europe is the biggest scope of the problem. Forty of the audit firms are based in the European Union, where each country can decide for itself if it wants to be cooperative, and some are distinctly more eager than others to do so.
Italy, France and Sweden lead the European list with five uninspected audit firms each, followed by Belgium with four. There are none in Britain, and only one in Germany. The other countries with at least one uninspected audit firm are Austria, Cyprus, Czech Republic, Denmark, Greece. Hungary, Ireland, Luxembourg, Poland, Portugal and Spain.
The two uninspected firms in Latin America are both in Venezuela.
Most of the firms are members of big international groups of accounting firms. That means it is quite likely that some of them participated in audits of American internationals that had operations in the countries. The American firm may have signed the audit, but it was relying on the uninspected affiliate for what could have been critical information.
Based on their names, PricewaterhouseCoopers leads with 12, followed by Deloitte with 10, KPMG with nine, Ernst and BDO with eight each, Grant Thornton with three and Mazars, which is headquartered in France, with two. There are another six firms whose names do not indicate such an affiliation.
There is no way from the outside to know if an audit firm is doing its job, which is why inspections are crucial. Since the oversight board was established in 2002, it has found a lot of sloppiness and failures to perform basic tests, among American firms. There is some evidence those firms are getting better as a result. The board has found small American firms that were certifying Chinese audits that they basically did not do. And Chinese affiliates of the major firms have audited, and approved, financial statements of Chinese companies that turned out to be fraudulent. That does not prove their audits were badly done — good audits can miss frauds — but it does provide an indication that improvements may be necessary.