Report Audits the Auditors

Big accounting firms have some homework to do when it comes to giving out regulatory compliance advice, at least in the U.K.

The Professional Oversight Board for Accountancy (POBA), a group charged with ensuring that auditors hired by public companies in the U.K. act in accordance with regulatory guidelines, yesterday published a report, outlining the results of an audit of the Big Four U.K. accounting firms.

POBA director Paul George says the actual results are confidential. The public report does not mention specific firms by name, although it treats with Deloitte & Touche LLP, Ernst & Young, KPMG, and PricewaterhouseCoopers.

All four firms were inspected by the POBA's Audit Inspection Unit from June 2004 through the end of March 2005.

Among "recurring issues" cited for improvement, POBA found cases where top firms hired to help companies identify how well their records met regulations actually didn't know what they were looking for.The report says there were instances where firms were guilty of "insufficient identification of the relevant laws and regulations affecting the client's business and/or procedures to identify possible or actual non-compliance therewith."

What's more, the firms didn't properly monitor their compliance audits to make sure procedures, once put in place, were followed through on.

At least some of the problems related directly to technology used by the firms to create their compliance audits. "Audit programming software that does not require a sign off against each planned audit procedure but only against the planned procedures as a whole," for example, can result in confusion of dates. POBA found cases where items in an archived audit were finalized after the date the audit was signed.

There also were problems with including the wrong information in an electronic audit system: "At one firm the use of an electronic database of audit procedures led to the inclusion of planned procedures in the audit programme without sufficient tailoring or consideration of their appropriateness."

Here's what the report says about the reliability of the firms' services in general:

At least two of the firms, Deloitte & Touche and Ernst & Young, had no response to news of the audit report.

In the U.S., similar inspections are typically conducted by the Public Company Accounting Oversight Board. That group hasn't published any group results lately.

Mary Jander, Site Editor, Byte and Switch