The “big four” professional services firms — Deloitte, EY, KPMG and PwC — are so regularly fined or subject to regulatory rebukes for doing sub-standard audits that the cost of insurance must weigh heavily. I have a suggestion to address the problem: scrap compulsory independent audits.
First, accounting rules are so prescriptive that directors and audit committees operate within a straitjacket. Gone are the days when those who prepare financial statements could exercise judgment to produce a “true and fair” view.
The independent audit is not needed for a true and fair view if a board does the following: has an audit committee whose members understand the business of the company and the risks it faces; is on top of accounting and disclosure requirements; and knows which questions to ask.