Bloomberg News

Big Accounting Firms Bungled 17% of Australia Audits, Asic Says

June 29, 2011

June 30 (Bloomberg) -- Four large accounting firms in Australia didn’t perform proper audits in 17 percent of the cases reviewed by the country’s regulator, with smaller firms falling short almost a third of the time.

The firms, which aren’t identified in the report, generally didn’t include sufficient evidence to back the conclusions reached, according to the study, which was carried out between July 1, 2009 and Dec. 31 and was released yesterday by the Australian Securities & Investment Commission.

“Investment managers need to give corporate governance aspects much greater weight in their investment analysis,” said Prasad Patkar, a money manager who helps oversee about $1.7 billion at Platypus Asset Management Ltd. in Sydney. “Typically, it’s not at front-and-centre of their thinking, and I’m not sure some managers even read the audit report.”

ASIC is focusing enforcement on so-called gatekeepers in Australia’s financial system, according to Chairman Greg Medcraft. Those gatekeepers include auditors and directors of companies, with the regulator having won a case this week in which a judge found Centro Properties Group directors were liable for failing to disclose all of the company’s debt in its 2007 annual report.

“They need to improve,” Medcraft said in an interview yesterday in Sydney, referring to the accounting firms. “Auditors have a key role in providing independent assurance on financial reports,” he said in a statement.

Professional Skepticism

In the 18-month survey, ASIC inspected 21 accounting firms, with four identified as “larger national.” The regulator reviewed 131 files, with about half coming from the big firms.

“Our audit inspection program has identified a number of instances where we have concerns about the auditors’ judgment and the level and attitude of professional skepticism,” the study authors wrote.

Instances were found where auditors sought to corroborate, rather than challenge, the judgment of their clients, according to the study.

“A culture of professional skepticism needs to be supported and promoted” by leaders of the accounting firms, according to the study.

“We will continue to work with the regulator and the practitioners to ensure the audit opinion is supported by the audit evidence,” said Lee White, the executive general manager of the Institute of Chartered Accountants in Australia.

--Editors: Malcolm Scott, Douglas Wong

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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