Future of Auditing
The future of auditing
Called to account
The auditing industry has yet to recover from the damage inflicted by an era of corporate scandals
Nov 18th 2004 |From the print edition * *
NO ONE becomes an auditor because the job is adventurous. In recent years, however, the profession has been really rather racy. Auditors have been implicated in fraud after fraud. The Enron scandal brought down Arthur Andersen, which had been one of the profession 's five giant firms. Now a scandal at Italy 's Parmalat that was uncovered in late 2003 threatens Deloitte & Touche, another global giant, as well as Grant Thornton, an important second-tier firm. And new scandals are still emerging: most recently, financial manipulation was discovered at Fannie Mae, America 's quasi-governmental mortgage lender, and at Nortel Networks, a telecoms-equipment group.
Investors depend on the integrity of the auditing profession. In its absence, capital markets would lack a vital base of trust. So it is no surprise that scandals have triggered changes in the profession. In America it has seen self-regulation dissolved in favour of the Public Company Accounting Oversight Board (PCAOB), in effect, a new regulator. It has been deluged with new rules, restrictions and requirements as part of the Sarbanes-Oxley act. In Europe the Eighth Company Law Directive, which, among other things, deals with the auditing profession, is progressing, albeit slowly, towards enactment. Britain 's Office of Fair Trading is in the midst of scrutinising its audit industry.
One consequence of all this change is that audits have become tougher. The requirement introduced by Sarbanes-Oxley that auditors report to independent non-executive board directors rather than company management has reduced one overt conflict of interest. The certification of financial reports by chief executives and chief financial officers has focused minds. And the PCAOB has begun its inspections of audit quality and internal
Called to account
The auditing industry has yet to recover from the damage inflicted by an era of corporate scandals
Nov 18th 2004 |From the print edition * *
NO ONE becomes an auditor because the job is adventurous. In recent years, however, the profession has been really rather racy. Auditors have been implicated in fraud after fraud. The Enron scandal brought down Arthur Andersen, which had been one of the profession 's five giant firms. Now a scandal at Italy 's Parmalat that was uncovered in late 2003 threatens Deloitte & Touche, another global giant, as well as Grant Thornton, an important second-tier firm. And new scandals are still emerging: most recently, financial manipulation was discovered at Fannie Mae, America 's quasi-governmental mortgage lender, and at Nortel Networks, a telecoms-equipment group.
Investors depend on the integrity of the auditing profession. In its absence, capital markets would lack a vital base of trust. So it is no surprise that scandals have triggered changes in the profession. In America it has seen self-regulation dissolved in favour of the Public Company Accounting Oversight Board (PCAOB), in effect, a new regulator. It has been deluged with new rules, restrictions and requirements as part of the Sarbanes-Oxley act. In Europe the Eighth Company Law Directive, which, among other things, deals with the auditing profession, is progressing, albeit slowly, towards enactment. Britain 's Office of Fair Trading is in the midst of scrutinising its audit industry.
One consequence of all this change is that audits have become tougher. The requirement introduced by Sarbanes-Oxley that auditors report to independent non-executive board directors rather than company management has reduced one overt conflict of interest. The certification of financial reports by chief executives and chief financial officers has focused minds. And the PCAOB has begun its inspections of audit quality and internal
References: 8 1 Introduction The role of an auditor is extremely important to the successful continuance of the entire corporate sector. This role is becoming increasingly complex and more rigorously standardised as the professional environment is subject to a seemingly never-ending cycle of fraud and scandal, and the occurrence of large corporate failures. In answer to this changing environment, many new reforms, legislation and standard amendments have been being introduced and strictly enforced by both the major professional accounting bodies and the federal government in... [continues] Ref: www.studymode.com