The Big 5 Audit Organizations

Topics: Big Four auditors, Audit, Subprime mortgage crisis Pages: 11 (4256 words) Published: August 22, 2008

The Big 5 Audit Organizations:
AICPA 3 General Standards of GASS & the Missing 4th Critical General Standard Martin D. Walden B.S., C.P.A.
Troy University

Advanced Auditing
PhD. Gaddis
June 19, 2008
The big four private CPA firms and the GAO compromise the big 5 Audit Organizations and follow GAAS (GAGAS for the GAO). The AICPA has identified 10 GAAS standards. The first three Standards are called General Standards and are listed below. 1.The auditor must have adequate training and proficiency to perform the audit. 2.The auditor must maintain independence in mental attitude in all matters relating to the audit. 3.The auditor must exercise due professional care in the performance of the audit and the preparation of the report. A fourth Standard is missing and results in the organizations corruptness, deceptive and often illegal acts, often with no consequences. This paper will enlighten readers to the need of a 4th General Standard!

Is there a missing General Standard for Auditing? Who are the Big 5 Audit organizations and do they have integrity, ethics, and honesty? This paper will discuss some activities the largest Auditing firms have been associated with over the past seven years. Is their activity learned behavior from our countries leaders? Is corruption inherent in the industry? Is independence the 2nd general standard a reality or merely an illusion? These are question we will review at the end of this paper and you may draw your own conclusions based on the evidence presented. The Big 5 audit organizations include the following:

KPMG (KlynveldPeteMarwickGoerdeler)
Ernst& Young LLP
Deloitte & Touche
GAO (U.S. Government Accountability Office)
In 2006 in its last year-end media advisory, the GAO plainly states that “For the ninth straight year, the U.S. Government Accountability Office (GAO) is unable to provide an opinion as to whether the consolidated financial statements of the U.S. government are presented fairly, in all material respects, in conformity with generally accepted accounting principles.” (Weiss, 2006) This type of opinion for a publically traded organization would raise substantial questions as to the credibility of management. In the case of the GAO issuing an opinion of this type leads knowledgeable individuals to conclude the government is full of corruption and nothing is being done to correct the rampant corruption. The federal government is supposed to be the leaders of our country and we as citizens have the obligation to remove and prosecute the corrupt parties. Where were the ethics, integrity and honesty? One major problem exists, the corrupt parties are the individuals passing the laws and they refuse to police themselves! As leaders they are supposed to set examples to the public and the large corporate officers and large audit firms partners appear to be following their lead. Another recent report from the GAO states “Our updated simulations continue to illustrate that the long-term fiscal outlook is unsustainable.” (Office, 2008) In the public sector this type of information would require management to present an action plan to identify how the organization would continue as a going concern, but not our government leaders, they have not addressed the issues but appear to be more interested on how they can increase contributions to their political coffers from large U.S. corporations. On May 29, 2008 the U.S. Securities and Exchange Commission alleged insider trading against James E. Gansman, a former lawyer and partner in Ernst & Young LLP’s New York office. (Commisssion, 2008) The government sees this as a prime example of an individual taking advantage of insider trading, which in my opinion is no different than when our leaders attach earmarks to bills which will materially benefit themselves and/or their families. “A number of...
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