There was some bad decision-making going on at Deloitte Touche Tohmatsu in Japan. Dozens of its employees had bank accounts at the subsidiary of a client for which Deloitte Japan issued audit reports, which is a no-no because Securities and Exchange Commission rules don’t allow accountants to have bank accounts with audit clients that have […]
Last week we let you guys know about a three-member independent committee EY recently created that will be tasked with advising senior leadership on how to strengthen audit quality. Not to be outdone, Grant Thornton announced Jan. 30 that it, too, has formed a three-member, mostly independent panel that will counsel the firm’s partnership board […]
If someone had told you that a Big 4 firm just created an independent committee that will advise the firm on how to improve the quality of its audits, you’d think it was KPMG, right? I mean KPMG partners stole confidential inspection information from a couple of rogue PCAOB employees because the firm’s inspection reports […]
We interrupt your Christmas Eve merriment to bring you this press release from the Securities and Exchange Commission, which on Dec. 21 announced not-so-glad tidings about Crowe LLP’s audit team: The Securities and Exchange Commission today filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit […]
The Hong Kong Institute of CPAs doled out some fines on Nov. 13 to Deloitte Touche Tohmatsu and a Deloitte CPA for making some auditing faux pas. The firm and accountant Lee Po Chi each have to pony up $50,000 HKD ($6,384 USD) “for their failure or neglect to observe, maintain or otherwise apply professional […]
2018 has been a no-good, rotten year for KPMG. The firm has been embroiled in accounting scandals in the United States and South Africa, was told by the United Kingdom’s accounting regulator that its audit quality sucks, defended an indefensible audit of the now-collapsed Carillion in the U.K., was fined £4.5 million in the U.K. […]
The Big 4 firms in the U.K. have been the target of repeated tongue-lashings from the Financial Reporting Council lately because, let’s face it, audits have been pretty damn bad. Things have gotten so desperate that EY is bringing in behavioral psychologists to improve audit quality. But the U.K. accounting watchdog’s most recent tongue-lashing wasn’t […]
The Public Company Accounting Oversight Board released its report on 2017 inspections of broker-dealer audits on Aug. 20, and once again, there was some disappointing news for those who champion audit quality. According to a PCAOB press release: In this inspection period, the PCAOB inspected 75 audit firms and reviewed portions of 116 audits and […]
When it comes to the Financial Reporting Council and KPMG audits, it must be like shooting fish in a barrel. This time, the U.K. accounting watchdog fined KPMG £2.1 million ($2.7 million) on Aug. 20 following the Big 4 firm’s admission of misconduct on the audit of fashion company Ted Baker Plc’s financial statements in […]
The Financial Reporting Council, the U.K.’s audit watchdog, is calling, is calling, is calling out Deloitte’s name in a probe of the Green Dots’ 2015 and 2016 audits of building products distributor SIG, according to several publications across the pond. From the Financial Times: SIG said in February it had discovered misstatements after a whistleblowing […]
And here I thought Phil Mickelson’s meltdown on the 13th green at the U.S. Open on June 16 would be the worst thing to happen to KPMG this week. From Bloomberg: KPMG’s audit work in the U.K. is of an unacceptable standard, Britain’s accounting regulator said, fueling calls to reform the industry, including dismantling the […]
Colin put this in ANR this morning but it's the kind of thing that deserves a post of its own just to make sure you don't miss it and mock appropriately: The Public Company Accounting Oversight Board gave a failing grade to Grant Thornton on 65 percent of audits inspected in 2012, the highest failure […]
According to a Financial Times article posted today, KPMG UK's former head John Griffith-Jones — who is now a regulator for the UK's Financial Conduct Authority — dropped a bomb at a posh lunch for accountants in London recently. Griffith-Jones verbalized what many of us already know and have been saying for years. FT says […]
Knowing you guys as well as I do, I realize it's pointless to bore you with details from Council; like how Tom Hood got snapped at by a very frustrated Maryland senator in her office or what people wore to last night's black tie gala. However, I will share with you an interesting panel yesterday […]
Yesterday, prior to today’s excitement regarding Satyam and PwC, PCAOB Chairman James Doty spoke at the The Council of Institutional Investors 2011 Spring Meeting and he had some interesting things to say about the audit profession, specifically that auditors don’t always remember that “protecting investors” ≠ “client service”:
Time and time again, we’ve seen services that might be valuable to management reduce the auditor’s objectivity, and thus reduce the value of the audit to investors. While management may need the services, they just don’t have to get them from the auditor.
Audit firms call this “client service,” and it makes things terribly confusing. When the hard questions of supporting management’s financial presentation arise, the engagement partner is often enlisted as an advocate to argue management’s case to the technical experts in the national office of the audit firm. The mortgaging of audit objectivity can even begin at the outset of the relationship, with the pitch to get the client.
Consider the way these formulations of the audit engagement that we’ve uncovered through our inspections process might prejudice quality:
• “Simply stated we want management to view us as a trusted partner that can assist with the resolution of issues and structuring of transactions.”
• We will “support the desired outcome where the audit team may be confronted with an issue that merits consultation with our National Office.”
• Our audit decisions are “made by the global engagement partner with no second guessing or National Office reversals.”
Huh. Doty doesn’t name names but you could easily interpret those statements as one made by a client advocate, not a white knight for investors. He continues:
Or, to demonstrate how confusing the value proposition could be even to those auditors who try to articulate it:
• We will provide you “with the best, value-added audit service in the most cost effective and least disruptive manner by eliminating non-value added procedures.”
(What is a “non-value added procedure”? Whose value do you think the claim refers to? If a procedure is valuable to investors but doesn’t add value to management, will it be scrapped?)
In other words, “we promise that we won’t be pests” and “value” will be a game-time decision. And finally:
Or, consider this as a possible audit engagement formula for misunderstanding down the road:
• We will deliver a “reduced footprint in the organization, lessening audit fatigue.”
(What is “audit fatigue”? Does accommodating it add value to investors? How should investors feel about a “reduced footprint”?)
Yes, what is “audit fatigue”? Is that what happens to second and third-year senior associates every February/March? Or is this better articulated by “we know audits are annoying and our hope is that we won’t annoy you too much.”?
Taking this (the whole speech is worth a read) and everything else that happened today into account, it will be interesting to hear what Mr Doty has to say at tomorrow’s hearing.