A 2008 report from the Public Company Accounting Oversight Board revealed that Deloitte had deficiencies in their work to the effect of the possibility that “important issues may exist”. The main concerns were auditors not performing their work thoroughly and they were not skeptical enough. The PCAOB reviews companies’ audit performance and compliance with rules and regulations. This is the first time a Big Four firm has received such a warning from the board. The main issues with Deloitte were auditors were too willing to take management at their word and didn’t question management when they should have.
Auditors must go into an audit with the idea that there is a problem, and verify that they are wrong. This is known as professional skepticism, and is a characteristic that defines auditors.
We had talked in the Internal and Performance Auditing class about Auditors who may not report a significant issue, as long as they retain the client. For some auditors, one large company may be their only client. The manager needs to retain this client to keep their position, and they fear if they upset the client, they will hire another firm. This happened to be the case in the scandals and subsequent bankruptcy of WorldCom, Tyco and Enron. Auditors need to understand the importance of their work, and act with professional care to verify their work. This is easier said than done, however. With the pressure of an auditor’s career on the line, and the opportunity to give the “all clear”, it is no wonder these types of issues occur.
Solutions to these problems are difficult to identify. We currently do not have a system in place to prevent audit firms from lying when they know there are risks or misleading information present.
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