Big Four Rapped Over Ethics
The Big Four firms have been criticized by the Financial Reporting Council for lack of ethical standards. They were also taken in for failure to exhibit desired professional skepticism over various audit judgments. The report tabled by FRC asks for improvement in audits.
The Audit Inspection Unit’s annual reports desire that Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young should adopt more religiously the principles embodied in the Ethical Standards and non-audit services should be kept insulated from audit clients where proper safeguard is non-existent.
Instances of failure cited as an example include PwC performing as an actuary to the pension scheme of an audit client and appointment of an E&Y partner in the board of company only one day after he resigned from the firm. At E&Y, this person was instrumental in the making of the IPO prospectus. The AIU also asked Ernst & Young to make sure that employee’s prospect of being appointed as a partner must not be tied with their accomplishment in selling non-audit services.
The AIU was critical of an audit at Deloitte which skipped errors in assessment of goodwill impairment of a client which resulted in overstating the available headroom by a considerable amount.
Out of 15 audits carried out by KPMG, AIU assessed and identified that in at least three audits the report of the auditor had been signed off before completion of all necessary work and in one instance there was some changes made in the account subsequently.
According to the ICAEW chief executive Michael Izza the report submitted by AIU confirms the complexity of the audit process and to those not well conversant with the audit world, it also draw attention to challenges faced by auditors in arriving at a judgment they make.