Last week, the Australian Financial Review reported that a regulator’s inspections of a small risk-based sample of public company audits found that Deloitte’s audit quality was the worst of the Big 4 accounting firms, with 14 of 44 (32%) key audit areas examined having deficiencies. But instead of owning it, Deloitte played the blame game, particularly with the Australian Securities and Investments Commission. The firm said the ASIC’s inspection process is inaccurate, “not fit for purpose,” and too volatile.
Well, this week a representative of an investor advocacy group told AFR that instead of wasting time and energy complaining about the ASIC, Deloitte should put a little more effort into improving its audit quality.
Diana D’Ambra, a company director and the former chairman of the Australian Shareholders Association, told AFR:
“The purpose of the ASIC inspection regime is to promote high quality audits so current and future investors, lenders and shareholders can have confidence in published annual reports,” Ms D’Ambra said.
The regime was important to “ensuring all audits were done to the same high quality standard”.
AFR reported last week that audit inspection results were better at PwC, KPMG, and EY, with the ASIC finding problems with 12%, 21%, and 22% of audits, respectively, at the other three firms. We’d be plastering PwC with gold stars if it ever had an audit deficiency rate that low in a PCAOB inspection report.
D’Ambra went on to say the inspection results might highlight that clients were not willing to pay the amount required for auditors to do their work thoroughly. She also wants bad auditors publicly shamed:
“[The results raise] two questions in my mind – firstly are auditors put under excessive cost constraints by companies so they can’t do sufficient testing? Auditors are there to provide a level of assurance for investors – so we don’t want them cutting corners to save costs,” she said.
“Secondly, ASIC should make public which auditors and which audits don’t come up to scratch and how serious are such failings in audit work.”
There was one guy who came to Deloitte’s defense. Stephen Taylor, a professor of accounting at the University of Technology, Sydney, and a board member of the Australian Accounting Standards Board, said it “isn’t unreasonable to criticize the ASIC approach as selective and, by definition, focused on process rather than outcome” and “the ASIC inspection process is just one small part of the overall audit quality ‘picture’ and can be easily overstated.”
I bet investors would strongly disagree with Taylor on the importance of audit inspections. Studies in the U.S. have concluded that investors respond favorably to PCAOB inspection reports and investors view these reports as “value relevant,” and use them to make informed investment decisions. I’m sure investors in Australia feel the same about ASIC inspection reports.
But as we found out recently in a report from the International Forum of Independent Audit Regulators, audit quality continues to suck all over the world, and I doubt it’s going to get much better anytime soon.