To the auditing industry, the fact that investors tend to blame auditors when frauds go undetected reflects unrealistic expectations, not bad work by the auditors. The rules say auditors are supposed to have a "healthy degree of skepticism," but not to detect all frauds.
"There is a significant expectations gap between what various stakeholders believe auditors do or should do in detecting fraud, and what audit networks are actually capable of doing, at the prices that companies or investors are willing to pay for audits," stated a position paper issued in 2006 by the chief executives of the six largest audit networks.
Note that last part. They suggested that if investors were really worried about fraud, they should consider paying more for a "forensic audit" that would have a better -- but not guaranteed -- chance of spotting fraud. Don't like our work? Pay us more.
Ernst's audit opinion does not say, which is no surprise. Virtually every audit opinion in the world says almost the same thing, with no details about the company being audited. Auditors are paid millions of dollars to produce a report that no one thinks is worth reading.
On June 21, the Public Company Accounting Oversight Board, which regulates auditors in the United States, plans to ask for public comments on whether to require auditors to do more and say more.
One idea the board is expected to consider is requiring auditors to disclose more about what they did, and did not, do. Ideally, auditors would point to things that they could not audit. There are a lot of them now, and sometimes they are crucial.
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