Antiquated audit requirement questioned by PWC’s defence of $5.5bn suit

By Alec Hogg

Having coughed up on forced audits for decades, I'm no fan of those who conduct them. A position that was hardened after these obligatory tick birds missed a crude fraud by an erstwhile financial manager who fleeced our company for millions.

Seems I'm not alone. One of the world's Big Four auditing firms, PWC, is being sued in Miami for a record $5.5bn by trustees of a defunct mortgage lender. They want the auditor to take responsibility for not picking up a massive conspiracy and also for certifying $1bn in assets that were worthless.

PWC's defence, like that of my old auditors, is simply that they cannot be held responsible. As the firm told the FT: "Even a properly designed and executed audit may not detect fraud, especially in instances when there is collusion, fabrication of documents, and the override of controls."

Public companies are forced to pay big bucks for audits, a grudge purchase they really don't need. Now we are told companies doing the charging carries no accountability for the quality of their product. If that's the case, perhaps someone can explain the point of an audit in the first place?

From Biznews community member David Mordant

The truth of the matter is that an obligatory audit is not to protect the directors, managers or shareholders of a company from financial malfeasance, but to ensure that all taxes due and payable to the tax authorities are paid in full and on due date. My only quibble with that is that the tax authorities should pay for the audit and not the company. It's a fallacy to think that auditors will uncover financial malfeasance at a company – that is the function of management. Sadly, too often auditors collude with management to hide taxes that are due and payable. That is too often an unintended consequence of the company being the client and paying the piper rather than the tax authorities.