What is the problem? When is the auditing profession going to get the message that if they are not performing their job adequately with professionalism, knowledge and integrity there will be no use for their services. We saw what happened to Arthur Andersen with the Enron scandal when they were destroyed.
An audit of financials is supposed to be the verification of the financial statements of a company with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurance that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The audit is designed to increase the possibility that a material misstatement is detected by audit procedures. The purpose of an audit is to increase the confidence of intended users of the financial statements.
If there is one scandal after another the degree of confidence the auditing profession instills in its users will deteriorate. The auditing profession obviously knows this, but it keeps happening. Why? Is money behind it? Doesn’t the auditor realize that the immediate profits may be immaterial when their services are no longer required?
Aside from the Enron scandal, just to mention some of the numerous scandals, Xerox would come to mind. In 2003, the SEC filed a complaint against Xerox's auditors, KPMG, alleging four partners in the "Big Five" accounting firm, permitted Xerox to "cook the books" to fill a $3 billion "gap" in revenue and $1.4 billion "gap" in pre-tax earnings. The issue was when the revenue was recognized, not the validity of the revenue. The SEC charged that the change in how Xerox applied accounting principles not only violated GAAP, but was intentionally designed to fool Wall Street into believing the new management team was working wonders.
Another scandal worth mentioning, actually involved an accounting firm's own fraudulent activity. In 2005, KPMG admitted to setting up fake tax shelters for its wealthiest clients, which helped them evade paying $2.5 billion in tax dollars throughout the1990's. KPMG agreed to pay $456 Million to avoid an indictment from the US Department of Justice.
And now there is another scandal lurking! In a stock market announcement, the company Olympus said it has been "engaging in deferring the posting of losses on investment securities." The details disclosed could lead to one of the worst accounting scandals Japan has ever seen. Olympus Corp's use of accounting tricks to hide big losses has obviously raised questions about its auditors, KPMG and Ernst & Young, both of which have audited Olympus in recent years. KPMG stepped down in 2009 after a disagreement over how $687m (£427m) in advisory fees on an acquisition was being accounted for. The replacement of KPMG, after the dispute over how to account for the acquisitions was Ernst & Young. The reason for KPMG's resignation was never revealed to the market. Olympus told investors at the time that KPMG's audit contract had expired and it was hiring Ernst & Young. Why weren’t the reasons for the step down by KPMG made public?
As a student of the accounting/auditing profession, it is very disturbing to constantly read about one scandal after another. Whether it is intentional or careless really doesn't matter. The accounting and auditing field is still a respected profession, as such we need to follow every procedure, policy, and standard necessary to continue to command that respect.
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