UPDATE 2-US Audit Watchdog Flags Faults In Fraud Auditing

UPDATE 2-US Audit Watchdog Flags Faults In Fraud Auditing - 1/22/2007

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UPDATE 2-US Audit Watchdog Flags Faults In Fraud Auditing
Kevin Drawbaugh - Reuters

Securities Mosaic. January 22, 2007
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EXCERPT: Auditors sometimes take a "mechanical," check-the-box approach to assessing the risks of possible financial fraud when reviewing the books of corporate clients, the U.S. audit industry watchdog said on Monday. Without naming any auditors or clients, the Public Company Accounting Oversight Board said its inspections of audit firms had revealed "quality control concerns that were communicated to the firms at which the deficiencies were identified." The PCAOB was set up under the 2002 Sarbanes-Oxley law to police the corporate auditing industry and help prevent the kinds of financial frauds seen in Enron-type scandals. The board's duties include examining audit work done by accounting firms such as the industry-leading Big Four -- Ernst & Young [ERNY.UL], PricewaterhouseCoopers [PWC.UL], KPMG [KPMG.UL] and Deloitte & Touche [DLTE.UL]. In an unusual report highlighting specific concerns, the board said: "PCAOB inspection teams have observed ... that auditors often document their consideration of fraud merely by checking off items on standard audit programs and checklists." PCAOB standards call for a more thorough approach, the board said. That means getting documentation on actual performance of certain procedures on fraud consideration. The board's report comes at a time when some business lobbyists are pushing hard to roll back portions of Sarbanes- Oxley, arguing it is hurting the international competitiveness of U.S. capital markets. The board said its inspection teams have observed auditors failing to expand audit procedures when addressing identified fraud risk factors.

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