PROFESSIONAL SKEPTICISM PCAOB, DELOITTE & TOUCHE (LO 1, 2, 4, 5)on May 4, 2010, the PCAOB issued its public inspection of Deloitte & Touche, LLP, covering their inspection of audits conducted during 2009. You can obtain the inspection report at the PCAOB website. In their summary comments, the PCAOB inspectors stated: In some cases, the conclusion that the Firm failed to perform a procedure may be based on the absence of documentation and the absence of persuasive other evidence, even if the Firm claims to have performed the procedure. PCAOB Auditing Standard No. 3, Audit Documentation ("AS No. 3") provides that, in various circumstances including PCAOB inspections, a firm that has not adequately documented that it performed a procedure, obtained evidence, or reached an appropriate conclusion must demonstrate with persuasive other evidence that it did so, and that oral assertions and explanations alone do not constitute persuasive other evidence. The report went on to say: In some cases, the deficiencies identified were of such significance that it appeared to the inspection team that the Firm, at the time it issued its audit report, had not obtained sufficient competent evidential matter to support its opinion on the issuer's financial statements or internal control over financial reporting ("ICFR"). it is reasonable to ask: what is the nature of these deficiencies; could this criticism happen to me; why didn't the reviewing partners detect the deficiencies? In order to understand how to answer these questions, the following excerpts describe the nature of deficiencies found on individual audits: In this audit, the Firm failed in the following respects to obtain sufficient competent evidential matter to support its audit opinion- The Firm failed to perform adequate audit procedures to test the valuation of the issuer's inventory and investments in joint ventures (the primary assets of which were inventory). Specifically, the Firm: . Failed to re-evaluate, in light of a significant downturn in the issuer's industry and the general deterioration in economic conditions, whether the issuers assumption, which it had also used in prior years, that certain inventory required no review for impairment was still applicable in the year under audit; . Excluded from its impairment testing a significant portion of the inventory that may have been impaired, because the Firm selected inventory items for testing from those for which the issuer already had recorded impairment charges