Comment: Auditing is core to maintaining integrity and trust in markets and the economy. It is all about transparency. But in the case of the big four auditors, they are a black box, writes adele_ferguson
"Nip it in the bud." It was a warning made by Allan Fels to a parliamentary committee to split the big four auditing firms to remove conflicts and the threat of Enron-style collapses from poor-quality auditing.It is a bold recommendation but as Professor Fels says, auditing is vitally important.
The corporate regulator has raised a series of red flags over the years about the deteriorating quality of auditing in Australia – 20 per cent of audits it examined had a deficiency. Clearly, something needs to give.unless there was radical reform to the way banks are audited, saying an independent body should set fees and select auditors to avoid conflicts of interest.
EY tendered for the job and in a confidential tender to NAB says the review would be based on early communication and a ‘no surprises approach’. It is why there needs to be a radical overhaul. The inquiry will listen to a number of solutions, ranging from an outright separation of the organisation, the introduction of legislation to prevent the same audit firm offering auditing and consulting services to the same client, imposing a limit on the number of years an auditor can audit a company and the creation of a separate regulator.
He points out that the Australian Auditing and Assurance Standards Board has produced 42 standards for audits and other assurance engagements that in total exceed 1100 pages. The list goes on. "International Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants is an auditor independence standard in more than a hundred countries, including Australia.
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