Audit firms fight to block expansion of fraud detection role

The US is preparing new rules to increase the responsibility of audit firms with respect to corporate fraud. These new rules would widen auditors’ responsibility to scrutinise whether a company is complying with laws and regulations. The proposal comes amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients. 

The arguments are compelling: a former chief accountant of the SEC said existing standards provided too much “wriggle room” for auditors to avoid confrontation with management when they see potentially illegal behaviour. “The current standard doesn’t serve the capital markets in any way, shape, fashion or form,” he said. In addition, one of the three board members who voted in favour of the proposal, said “There are legal issues that you may come across in an audit and be required to have an opinion on. If you see things of concern, don’t just unsee them.”

Based on our observations in the Nyrstar case, we can only confirm that the auditors played a key role in allowing the company and its reference shareholder to do what they did. They did so by taking the most restrictive interpretation of their role & responsibility, amongst others by issuing a qualified opinion in which crucial wrongdoings were submerged in a carefully drafted language, the implications of which were impossible to assess by the market. As a result, their opinion became de facto useless for the purpose of taking proactive or remediative action.

It is therefore worrysome to learn that "The world’s largest accounting firms are fighting to block new rules in the US that would force them to take more responsibility for rooting out fraud at the companies they audit."

This seems to imply that audit firms still don't (want to) understand the seriousness of the issue, nor that they are acting in the interest of their clients. Rather it seems to provide additional proof of the fact that the large audit firms continue to act in their own self-interest, rather than caring about the protection of the stakeholders they are supposed to serve in the first place.

A serious self-relfection is needed, but in the absence thereof we can only admire the regulators in the US, for the courage they are showing by taking important steps to stop the self-servicing of large professional service firms.

We hope that the exemple of the US regulators will inspire the belgian regulator FSMA and the minister of justice Vincent Van Quickenborne to find support, strength and conviction in their efforts to submit legislative changes in order to improve the protection of minority shareholders' rights, and to fight organized fraud by large, immoral investors who want to take hold of our industrial crown juwels.

Go to original article 'Financial Times'