Accounting firms accused of ‘operating with impunity’ as regulator flags growing number of flawed audits
- Kris Vansanten
- Aug 1, 2023
- 1 min read
Investigative journalism by the International Consortium of Investigative Journalists (ICIJ) shows that (i) US regulators are increasingly sctrutinising the role large audit firms are playing in the enabling of organized corporate fraud and the effectiveness of their services performed, and, more worrysome, that (ii) the same big audit firms effectively act with impunity and are taking action to resist the increased control over their work.
Extracts:
A U.S. regulator has found that audits conducted by global accounting firms have grown increasingly flawed and warns that these deficiencies undermine investors’ ability to make informed decisions.
In a report released last week, the Public Company Accounting Oversight Board (PCAOB) said that roughly 40% of audits it inspected in 2022 had such significant deficiencies that the audit firm did not have sufficient evidence to support the opinion it rendered on clients’ financial statements or financial reporting.
Audit quality has been deteriorating in recent years, and the report states that “the most significant increase” in flaws occurred within the global network firms, a category that includes the “Big Four” accounting firms: Deloitte, Ernst & Young, KPMG and PwC. The PCAOB found that 34% of audits in 2021 and 29% in 2020 had such deficiencies.
“The PCAOB is a regulator that was never really given the authority and the heft to tell the audit firms, ‘You need to improve, you need to get it done, or there will be repercussions,’” McKenna told ICIJ. “The largest firms have the upper hand and are operating with impunity.”
