A report was recently released at an international conference in Paris. The 20-page report is entitled “Global Capital Markets and the Global Economy: A Vision from the CEOs of the International Audit Networks,” and its authors are the heads of PricewaterhouseCoopers, Grant Thornton International, Deloitte, KPMG International, BDO International, and Ernst & Young.The report is intended to promote “a robust dialogue about how global financial reporting and public company auditing procedures must adapt to better serve capital markets around the world.”
I found certain statements in the report particularly interesting, beginning with, “As the CEOs of the six leading global audit networks, we believe we have a unique perspective and responsibility to serve as a facilitator for a conversation about how these core needs can be more fully met--now and in the future. Although our profession is, of course, foremost in our minds, we also believe that the ideas we advance in the following pages will benefit all stakeholders who care about the vitality and performance of our increasingly global capital markets.”
Six admitted stakeholders who want to act as facilitators. This dual position--no matter how well intentioned -- is evident throughout the rest of the report.
The report is comprised of extensive discussion of an increasingly globalized and complex economy, the Information Age, the shortcomings of financial reporting, and the fact that the information technology revolution has made data access and customization easier.
Numerous recommendations for change are made including convergence with international standards, and minimizing the national differences in the oversight of auditors and enforcement of relevant audit standards. Limiting auditing liability, efforts at “reducing the expectation gap” with regard to auditors, and elimination of non-uniform, overly strict auditor independence rules are all urged. Other suggestions include subjecting all public companies to a forensic audit on a regular or random basis, and having investors decide the depth of the forensic aspect of an audit of a public company.
Then there was the following statement in the report: “It is essential, going forward, for enforcement authorities to focus penalties for any auditor wrongdoing or negligence they may uncover on those directly implicated in such activities, rather than on the entire firms that employ them or with which they may be affiliated. That the current audit services market is competitive does not mean that it can afford to lose another major network, through a liquidation-forcing liability verdict or criminal prosecution.”
Beside the dual role of desired facilitator and stakeholder evident throughout the report, I got the impression that the Big Four was welcoming two more firms to the fold maybe in part out of a belief that the current system was in danger if one of the Big Four ran into “Andersen” type trouble. I also got the impression that these firms wanted to establish an early position, and by doing so leading, directing, and, to some extent, controlling the direction of the debate, or as the report says, dialogue. There also might be a desire to put the auditors in a more favorable light in view of some institutional investors’ criticisms.
I wonder how much relevance this report will have to the thousands of CPA firms in the U.S. Also, will these six be joining together more often as a group in a future in different contexts to represent their common interests? Finally, what role, if any, does the AICPA play in this dialogue?
This is the first time I heard the so-called “International Audit Networks” speak, and do so in unison. Can’t wait for others to start answering back.
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