Those reader comments on audit in full

The full survey results are also available on this site, but below are the reader comments in full.

“This is a thorny subject. At the end of the day, company directors are responsible for preparation. Ensuring no material fraud is contained in the accounts is a director issue. You only have to look at Wickes and several others to see what a farce that is made to look. The auditor is not the main problem here, I feel, it’s lax control in big companies that’s to blame.”

“Fees should be set up in a way that auditors share the risks and take responsibilities for errors.”

“It is an unfortunate fact of modern business life that persons external to a company have come to rely more heavily on the existence of an audit report as a stamp of approval on all matters affecting the company. The responsibility for keeping records and producing accounts rests with the directors of the company, as enshrined in law, not the auditors. If accounts are manipulated by company directors in a way that is not obvious to a qualified auditor then the criticism should be levied only at the directors. I do not know if Andersen’s failed to operate the right level of skill and care when auditing the books of Enron, but I see no case for introducing draconian measures that force rotation of auditors. It would offer no guarantee that another Enron could not happen and thus leave external people with no additional comfort. ”

“Recent events have confirmed that on the whole audits in the current form are a waste of time and money.”

“I think that the Enron/Andersen episode has done immense damage to the profession and those members responsible should be required to resign from the institute.”

“Independence is currently measured by considering the fee as a percentage of the total gross fees. I believe that this should also be measured as a finite amount. Above this figure independence should be scrutinised. Associated consultancy companies should be considered including “family” connections where financial connections are not apparent.”

“It will always be possible for companies to hide relevant details from their auditors, the practices operated by Enron were perhaps not unusual when compared with other unscrupulous companies in anything other than scale.”

“When auditors charge such large fees they should take their share of responsibility and not hide behind the accounts are the sole responsibility of the management”

“The real scandal lies in the way that large corporates can use their financial muscle to avoid the need to “comply” to sound practice to the same extent as their smaller brothers. The Dollar/Pound/Euro speaks loudly in the audit marketplace. Looking the other way is perhaps too easily bought.”

“Auditors used to check that things were right. Now they look at trends and pretend to be business advisors. They should get back to basics.”

“I worked for a big five in London for 9 years. It was fairly well known even as students that Andersen’s approach on the audit side was a bit different to the others – a greater emphasis on analytical procedures in summary. It was also perceived that such a situation was most likely to befall Andersen given the level of non audit work as a proportion of total fee income.”

“Audit standards need to improve. Management are primarily responsible to act properly. Auditors need to be wary.”

“Underlying a lot of the adverse comments appears to be an assumption that the auditor should be expected to detect all wrong-doing within an organisation in all cases. Some reality as to what is a reasonable expectation is, would be useful in curbing some of the most extreme possible consequences. As in many areas of life these days, finding someone to blame after something goes wrong is more important than putting responsibility where it belongs (especially if you can blame someone who still has some money to pay compensation with). Responsibility lies largely with the management and non-exec directors. I think this is a more productive area to focus on for good stewardship.”

“Change in legislation will probably bring about a rotational system/best practice.”

“We are owned by an Italian company and therefore are already subject to a change in auditors every 7 seven years. It being the change year, and with what we’ve been through with the auditors, I don’t think the period should be below 7 years.”

“The age of using audit as a loss leader for value added services is over. In future investors will want to see real scrutiny of company accounts and those companies who are not seen to be providing it will suffer as a consequence.”

“In general the last 20 years have witnessed a considerable drop in ethical standards. “my word is my bond” no longer applies, and presentation is more important than content. The pressure to “create” optimistic results has forced short-termism. The banks are more risk averse and operate as committees rather than trust to their experience and belief in the individual. This has come about as the result of diminution in ethical responsibilities already adhered to, giving the result that virtually nobody in the financial world can be trusted at face value, and that everything has to be backed up by independent consultants etc. This costs the client more, and enables the banks to hide behind someone-elses’ report.”

“Although big 5 firms should continue to carry out consultancy work perhaps there should be more segregation of departments so that audit remains completely independent. This would involve complete non involvement of audit partners in consultancy or perhaps consultancy work handled by a separate big 5 firm.”

“Auditors should remember that they are acting on behalf of shareholders and not directors and need to perform their duties diligently”

“I would like to see some more effective internal audit. I would also like to see the balance of power between auditors and the company significantly strengthened in favour of the auditors. They in turn would have to give up any other commercial activity and concentrate on this discipline.”

“The profession needs to split audit and consultancy to retain its image. Floating the consultancy arm and retaining a major shareholding is not independence.”

“I believe that it is an insult to the intelligence of management to suggest that they cannot select advisors on their own criteria. If Andersens hadn’t advised Enron on the structures they used somebody else would have.”

“I feel that the whole issue has been warped. Do the public really know what an audit is. The auditors role is receiving all the flack. I am sure it is based on their ability to pay massive fines due to insurance and other provisions for such circumstances.”

“The Enron collapse is a US problem – there is no reason this will affect the current situation in the UK”

“Enron issue has dented the reputation of the audit profession. It needs to be recovered.”

“Andersen have always been considered the exception to the Big 8,6,5 and eager to promote their non audit services. This goes back to the early 1980s”

“Very difficult matter. Every time you change auditors they spend the first 2 years trying to understand your business. If they are in situ too long, however, it all gets a bit too cosy. Probably need to rotate the audit partner, rather than the audit firm, every 4 years to ensure a new viewpoint is introduced on a regular basis. This happened to us recently & was refreshing.”

“There is a case for restricting any changes in the rules to large companies (paying large fees) only”

“I must caution that my comments are from the perspective of SME company albeit on a European wide basis.”

“Answers above are my views re listed companies only not owner-managed business”

“Although big 5 firms are now hiving-off consultancy practices, tax and accounting related consultancy remains within the audit partnership. Advice on accounting policy and practice is likely to come from the audit side of the firm.”

“Auditors should provide a proper service in the first place. If they charge more then they are admitting they have been taking companies for a ride and not doing their job correctly!”

“Whilst people will review Andersen’s current audit appointment I do not think many more would change than usual.”

“The Enron case also shows the dangers of over-confidence in subjective valuations especially those of future uncertain income streams perhaps spanning over a decade which are then securitised and sold off to unsuspecting investors. There are a large number of ‘principal finance’ boutiques that specialise in buying staid companies with attractive cash flows. Do these financiers value the future cash flows on their investments on the same rose-tinted accounting basis as Enron had? But it is just as dangerous to undervalue investments not bought as it is to overvalue investments purchased. Market conditions change and it is incumbent on investors and bankers to continuously revalue their assets – objectively.

“I believe auditors become complacent. There should be a change in the audit partner responsible for a company’s audit periodically.”

“There is a need for many companies to strengthen (or even introduce) audit committees”

“Independence of audits is not just relevant to non-audit work ,but should include the overall size of the audit fee both now & projected.”

“I think you have to make the distinction between privately owned companies and publicly quoted companies. The whole idea of auditor independence is of much greater importance when they are reporting to shareholders that do not form part of the management team. When auditing private companies, cross selling of consultancy work etc. can bring benefits without the same risks that lack of auditor independence could bring to a public company.”

“Staff training and recruitment seems to be changing whereby the trainees and juniors no longer want to do the hard work only to “sound” right which is symbolic of the age in which we now live. The Directors of Enron (FD in particular) was fully aware of the situation and should be personally liable.”

“There needs to be a better understanding of the role of Auditors and the Directors, and more controls put in place to verify the actions of Directors. In this case there seems to have been some collusion on activities conducted and no independence from the auditors. Rotation could be both costly and time consuming and still not produce better results. Auditors have not helped themselves over past years with the refusal to be independently regulated, self-regulation doesn’t work. ”

“With the development of limited liability partnerships the audit role should concentrate only on the audit. No non-audit work should be allowed. In addition accountants / auditors must move away from self regulation – an embarrassing dillusion that the public accept an antiquated gentlemens’ club as the best means of protecting the public!!”

“A change of name always helps!!!”

“Many global organisations are now so large and diverse that it is becoming too easy to conceal transactions from auditors. Possible solutions might be more than one auditor for firms over a certain size: more on-going checks and co-operating between external and internal auditors.”

“The question whether there should be a complete ban on auditors doing other work for clients cannot be reduced to a simple yes or no. I think they should be allowed to do non audit work but not so much that their audit judgement may be compromised. Perhaps a limit should be set on non-audit fees – say no more than 50% of the audit fee”

“Companies should be permitted to use their auditors for non-audit services, carefully monitored by the Audit Committee.”

“The key issue is the culture that exists in the US which permits any practice which is not specifically prohibited. The US would be wise to borrow from the UK and base its accounting requirements on substance over form, consolidation with control and, overall, make reporting subject to the true and fair view. This is much tougher than merely complying with the rules.”

“Like all scandals of this nature the auditor is a mere scapegoat. The investment community must invest in other safeguards to look after the interests of investors. Investors are however only interested in one thing and so long as they achieve this then they could not give two hoots about anyone who loses out as a result of their gain. Enron is just an extreme example of how the world we live in goes around. As an accountant I love lots of regulations as it means more work for me!!”

“I think that Enron will make companies, auditors and audit committees review their relationships in a critical light. In particular I think that companies will reconsider their non-audit services carefully especially those with a public listing.”

“Consideration might be given to rotation of Audit Managers within major firms.”

“Some of my answers would have to be supported with a guarantee. e.g. Listed companies should be prepared to pay more for their audit, however, this would need to be controlled strictly and clearly identified as to what you were paying more for. < Rotation of auditors should be confined to the public sector and very, very large global firms. Alternatively joint audits should be conducted”

“the level of audit and advice given by the Auditors is often poor, irrelevant and based on their agenda rather than what may be in the best interest of their client.”

“I would be prepared to pay the auditors more for a more thorough scrutiny, provided they also accepted or were forced to accept a higher degree of responsibility for the accuracy of their audit opinion.”

“Auditing will not always find fraud. Fraud investigations will, by necessity, not be able to cover all possibilities from a practical viewpoint”

“A massive over-reaction to a particular AA office’s incompetence”

“There should definitely be audit rotation, preferably over a relatively short period, say, 3 years, for publicly quoted companies. For smaller private companies, there should be no such restriction.”

“For public listed companies the role of auditors should be more independent with non-audit work being carried out by a third-party. For small/medium companies where shareholders are predominantly managers/directors then current situation works fine to minimise costs and gives greater benefits.”

“There needs to be more distinction between companies of different sizes and most importantly funding status. Auditors of quoted companies should be approved and rotated every few years as a condition of the regulatory authority of the market upon which they are quoted – making the market authorities more accountable to investors and the companies have to be prepared to pay higher audit costs for the access to capital markets.”

“I feel that auditors should be more involved with a company (especially large companies) throughout a year rather than spending a few weeks around a financial year end. I feel this would increase the chances of finding accounting irregularities.”

“I understand Andersen Enron Engagement lead partner wanted to qualify the accounts but was told not to by Andersen senior management, presumably to try to retain strong relationship and guarantee other work. There should be more strongly enforced “chinese walls” like in investment banking between audit teams and other groups within the audit firms to prevent this. Audit lead partner should have ultimate authority to qualify, regardless of senior management opinion. Ultimate problem is getting companies to take an independent view of non-audit work, regardless of result of audit…much harder.”

“My major concerns are 1: The need to ensure that the effect of major PLC scandals do not lead to a trickle down in red tape & compliance costs for SMEs. 2: I believe significant consultancy work & audit work by the same firm inevitably leads to conflict of interest.”

“I would much prefer a rotation requirement to a complete ban on use of the audit firm for other services. I think that there is an increasing risk that all listed companies will be forced to rotate. Every Five years probably the best period. The main drawback will be in year 5, as any firm will be super sensitive to a new firm coming in and being critical…an audit in that year will probably be hell !!”

“My experience of working in large corporations is that they use large accounting practices that are more interested in collecting large fees than carrying detailed audits”

“The Non audit side of the Big 5 (in particular) have become greedy and out of touch will the real commercial world – except where in regards to their own pockets.”

“The practice of self-regulation of the industry has made the profession look self serving and needs to be much more open. Also the issue highlights the need for enforcing International Accounting standards.”

“It is the directors’ responsibility to have controls and processes in place to prevent/detect fraud; there is a role for auditors to ensure that the controls and processes exist and are being followed”

“I believe that companies do not get good value for money from their audits – auditors spend far too long form-filling to ensure their PII requirements are met and nowhere near long enough addressing the needs of their clients. Critical systems reviews are rare – often audit staff are so inexperienced they wouldn’t spot a fraud if it bit them. The pressure on audit managers is too great to bring an audit home “within fee budget they cannot spend quality time with the client. I would be happy to pay higher audit fees if I felt I was getting value added and not simply paying for audit partners’ retirement homes! Audit firms seek too high profit margins giving rise to enormous hourly rates – we’re the mugs who pay because there is no alternative. I speak as one who has been on both sides of the fence.”

“Auditing must cease to be self-regulated. A National Audit department must be established.”

“I think all companies whose shares are traded should have auditors on a rotational basis. In addition, the audit firms of these traded companies should be disqualified from acting in any other capacity than auditing ; for instance the audit firms should not be involved in consultancy, m&a, funding and share issues etc, right through to administration and receiverships. Audit firms should carry out their audits of public companies on behalf of the shareholders and regulatory and revenue bodies.”

“I firmly believe that it is the responsibility of the Directors, not the auditors, to ensure that there are no fraudulent or misleading accounting practices taking place. It is not reasonable ever to expect external auditors to detect all such practices. A much better approach is to adopt more appropriate accounting policies in line with those in the UK, rather than the rigid US system. It is wrong to regard the whole of Andersens in the same light as that part of the firm that was involved with the Enron audit.”

“It seems to me that these failures were more a product of ineffective internal audit and controls.”

“Using Andersen’s at the moment would be like taking a flight immediately after September 11th because of heightened security it made it much safer. The whole firm will be so aware of the Enron problem they are very unlikely to allow any questionable transactions”

“Auditing needs to be more intelligently executed. Auditors need to understand the business they are auditing.”

“There is a lack of confidence in the audit profession because of large corporate receivership/chapter 11. Whilst this will never disappear completely there certainly need to be greater accountability on the part of the profession when this is shown to be the result of fraud or dubious accounting practice”

“There has undoubtedly much misreporting of the facts of this case – but it has made a good story. It is difficult to see how Andersen’s reputation can be saved and they will lose some business as a result.”

“I think that the issues are different between public & private companies”

“All of the big firms are the same- they send out inexperienced unqualified juniors to question and check the work of Finance Professionals with all the answers.”

“Auditors are watchdogs. They cannot expect to escape blame just because the directors have signed a letter stating they have disclosed all material facts. They have a duty to ask probing questions and to look behind the figures presented. They should not be seeing if accounting practice goes by the letter of the standards, but does it comply with the spirit of the standard also. Financial advisers will tell a company if its methods meet its operational requirements. Auditors will say if they meet reporting and shareholder requirements. Auditors cannot do both”

“Control of the firm of auditors is the responsibility of the directors of the business and ultimately the FD. Further regulation is unlikely to stop a firm being coerced by a large fee paying client. Integrity is drive from within the business itself.”

“There is a debate to be had here, but the Enron situation is a real oddity and does not show a true reflection of the work of auditors in other companies. We are in danger of “throwing the baby out with the bathwater here. In essence Corruption is possible anywhere if enough senior people are likeminded, the Enron situation is serious, but could happen almost anywhere, but i doubt that anything could happen on such a scale. Most of us have built up relationships with auditors that recognise individual responsibilities and these should not be brought into question, except internally where audit committee’s must take their role seriously.”

“The big five are a cartel that must be broken up. Their market strength works against the best interests of their clients and it is uncompetitive.”

“The accountancy profession should be forced to be more competitive, by legislation if necessary.””

“It is a fact of life that while there are grey areas there will always be people who exploit them. One of the problems with auditors is that they need to beef up their expertise (and courage) to fundamentally challenge things that they don’t understand. If someone can’t explain the rationale for something then alarm bells should ring.”

“The audit industry has become fee-greedy, and in general do the absolute minimum required in order to complete their work. They are often auditing companies that operate under very tight margins yet command significant fees to complete the work. In the present climate it seems a little inequitable.”

“Big five firms are pretty much the same, independence will always be in question when big fees are involved. In the Enron case I doubt that other auditors would have behaved much differently.”

“Insufficient work was done in ensuring the impact of the SPVs was not materially misstating the balance sheet. Tighter regulation surrounding this area of off balance sheet financing is required.”

“I believe the problems at Enron are down to financial mismanagement by Enron themselves, although AA should be admonished for failing to pick up on the mismanagement”

“Auditors are always very exposed in cases of systematic management malpractice as in the Enron case. Surely the solution is really vigorous legal penalties against management teams found guilty of such actions.”

“Far too simple, The Enron crisis is as a result of the auditors/advisors taking a strictly legal view at the edge rather than, is this true & fair what is happening?”The profession has lost its basic integrity and legal prescription is not the answer.”A complete desertion of clients might just wake up Andersen, the most expensive firm /hr that maybe somewhere they have lost the plot.”

“Audit v Consultancy independence is not the issue. Better/Tighter accounting standards & policing thereof is the solution to prevent the gross manipulation of results”

“The issue is the calibre & integrity of individuals. If we changed firms after every scandal, we’d soon run out of options.”

“Because of “their apparent knowledge of the business”, It is often more efficient for the audit firm to perform non-audit services such as tax and “special projects”. This should be permitted to continue. However, performing internal audit or major accounting exercises should, in my opinion, be prohibited.”

“We changed this year to Andersen from PWC !!!!! before the scandal broke.”

“What about the directors. They are responsible for the preparation of the accounts.”

“What about the quality, integrity and effectiveness of the management? Appalling events driven by devious management. Witness the C&W story today…means more power to the whistle blowers, which is no bad thing.”

“The Enron failure was on such a vast scale that sheer incompetence is the only explanation for it is impossible to conceive that there was a deliberate blind eye to the problems”

“An audit is an opinion, not a statement of fact. While auditors do owe a duty of care, the management of such companies are responsible for the accounts.”

“More emphasis should be placed on the dishonesty of the directors and how they got to their position in the company than on the failure of the auditors to discover they were dealing with people who set out to deceive and rob shareholders and creditors.”

“The audit world will never be the same again. Auditors & clients will have to work at rebuilding trust.”

“Enron is such a large tangled web most companies have nothing so complex to have problems with, but will suffer as audit firms up their fees to cover liability insurance.”

“The questions above are written in general terms and obviously the answers will vary according to whether companies are private or public, large or small etc. I have answered in terms of large plcs.”

“Answers probably biased towards being one of two ‘controlling’ directors of a private company.”

“There are some areas where it would be injurious to companies to be banned from using auditors – eg. tax”

“The accounts are the responsibility of the Directors – not the auditors. The blame is being laid at the wrong door”

“While I do not advocate a ban on auditors performing non-audit work, personally I try to avoid this wherever possible.”

“Auditors give useful advice in many areas (e.g. Taxation) hence they should not be barred from being “Consultants”. Name any large firm of auditors that has not had a similar experience! Andersen is just bigger this time and I am sure other Partners in other offices would have behaved differently. Best practice on at least Retendering if not full Rotation should have the desired effect in increasing “Efficiency Awareness”. I use Mazars NR as being large enough to have the expertise and best practice input, but small enough to give personal service and quality service. We retender every 5 years.”

“I believe in auditor independence and any consultancy or tax engagement of same destroys this independence. Quality and skill levels of audit staff should always be appropriate for the task to be undertaken. Engagement of too many junior audit staff seems to be name of the game in search for increased profit.”

“We appreciate the ability to use our auditors, who are familiar with our group, for advice in other areas. The alternative would be to retain two or more firms and to probably double the amount of liaising/briefing work – which would drive fees up. But auditors MUST take steps to demonstrate that their audit conclusions are not compromised by the other work they do for a client, and continually demonstrate that conclusions on potentially contentious matters have been robustly arrived at.”

“Need for internal audit departments that are allowed to scrutinise and that are shown respect within the organisation”

“For probably far too long, the profession has used trainees to undertake work that they are ill equipped to perform. Whilst their work is reviewed by seniors, managers and partners, if they miss the significance of an item that has never been an issue before, it is probable that it will go unchecked. For instance this year our audit was undertaken by two people that I’d never seen before, and managed by a person who I’d never met before. The new manager didn’t deem a visit to the office prior to the audit as necessary and the amount of time we have spent in each others company subsequently has been minimal.”

“Rotating auditors per se is inefficient as the transfer of general history and business understanding is usually poor. Regular rotation of audit seniors/managers and formal partner review by external peers could be a halfway house for the UK.”The use of continuous rotating audit cycles will probably increase as will the role of internal audit.”

“Depth of audit should be consistent with the size and complexity of the company. A more thorough audit would not always prove necessary but where it does the shareholders and the company must expect audit fees to be higher.”At present it is the responsibility of the auditor to ensure audit quality and manage conflicts of interest. This would appear too easy to ignore in some cases and something must be done whilst the iron is hot to restore confidence in the industry”

“Ripples of Enron affair will be long lasting and far reaching.”

“We are on the point of moving to a big 5 firm across Europe but we excluded Andersen from the list. The publicity did not help their cause.”

“I believe that a distinction should be made between listed and non-listed company auditors. In addition the speed with which auditors sign off after the year end indicates to me that they are relying heavily on Representations rather than post balance sheet events which cannot ensure adequate audit work has been done to verify the reasonableness of estimates.”

“Auditors, and their partners, should be more commercial and should have a separate page for their “review comments to be included in the Annual report.”

“I think that certain categories of work can complement audits whereas other categories may cause a conflict of interest at audit time and regulations should develop to reflect that. Change will come but slowly. Perhaps, audit firms should be appointed by a separate body rather than the company. This would safeguard future fees and free firms to provide unhindered advice.”

“Audit committees need to be better qualified – perhaps specialist companies (or other audit firms) could be employed”

“I believe that the structure of company managements should change,