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Fundamental to this is the belief that information provided by market participants is accurate, complete, and reliable. Accountants have been given the task of certifying this. Investors must, therefore, trust that public company auditors are not only knowledgeable and experienced, but also independent and possess the highest levels of integrity...
Given the extraordinary nature of KPMG’s recent breach, how it came to pass and its consequences, we should be scrutinising this event carefully. Some parties are using this recent partner’s inappropriate behaviour to push for regulations requiring the naming of auditors, or the periodic rotation of audit firms. It should however be noted that neither of these “fixes” would have detected or prevented this partner’s disregard of basic auditing standards.
Clearly, internal controls in the audit process are not working at KPMG and other large accounting firms. With increasingly constrained resources, increased governmental oversight is not likely to solve the audit quality problem either. We simply need more transparency from these firms upon whom we rely to protect our interests.
Just as investors require reports to make informed decisions, so do we need information to better assess auditor competence, integrity and quality. I would suggest that any accounting firm that audits a traded company be required to provide an annual report, which would include certifications for financial statements and internal control systems.