Deloitte’s Failure

Auditing a company has one major purpose. That purpose is to make sure all the finances have been handled correctly. There are a couple of ways they can be handled incorrectly. One is the company just makes an honest mistake and this can happen. There are a lot of different little laws that are hard to keep track of even for someone who works with them for a living. Another way they can be miss handled is for a company to intentionally miss handle them. This is commonly referred to as fraud. An audit is the way the government tries to prevent fraud. Every publically traded company has to be audited every year by an independent accounting firm. Deloitte is one of the four biggest independent accounting firms in the United States. These firms are known as the big four.

            In 2002 the United States established the accounting oversight board. It was part of the Sarbanes-Oxley act and was in response to the failures of Enron and WorldCom. It was created for one reason, to make sure that these independent accounting firms are doing their job. James R. Doty, the board’s chairman said, “Our inspectors have conducted annual inspections of the largest U.S. audit firms for eight years. They have reviewed more than 2,800 engagements of such firms and discovered and analyzed hundreds of cases involving what they determined to be audit failures.” In 2008 the accounting oversight board released a report that said Deloitte was not doing their job.

The problem is that Deloitte was simply taking the word of the company’s management that they were following the accounting rules. This is not right. The whole purpose of Deloitte doing an audit is to make sure that the company is doing things right and if they knew this was not the case they would not freely tell the auditor that fact. In the 61 audits that the accounting oversight board reviewed, nearly half had major problems. Three of these times the problems were big enough that the audited company had to restate there financial statements which and this would have cost them a lot of money. In these cases it was simply a failure of Deloitte to consult with top experts of the company to make sure that proper accounting rules have been used.  

Deloitte was given a one year period to correct this problem. If they would have done so to the satisfaction of the accounting oversight board the report would have never been published but they failed to do so. Recently the new chief executive of Deloitte was quoted as saying “In all of the areas mentioned, we have made significant investment. I have complete confidence in our professionals and the quality of our audits. There were, and always will be, areas in which we can improve.” This is a step in the right direction but if they would have done this at the beginning then they could have saved themselves all this trouble.

Norris, Floyd. “Accounting Board Criticizes Deloitte’s Auditing System.” New York Times       17 11 2011. n. pag. Web. www.nytimes.com