External auditors have been blamed for failing to protect the public interest in their audit work. In particular, audit clients have collapsed after getting a clean bill of health from auditors.
The blame is not isolated to Kenya or to any audit firm, it is widespread.
- Last year,2024, Ernst & Young was accused of helping a United Arab Emirates oil storage business carry out a fraud against investors in a US special acquisition company.(UAE)
- In the year 2024, PwC Zhong Tian, the China unit of PWC was fined a record 441 million yuan (US$62.2 million) and banned for six months from undertaking auditing for its failures in checking the books of bankrupt developer China Evergrande Group(China)
- In the year 2023 , EY was banned from auditing companies of public interest in Germany for two years over its failures as the auditor of Wirecard in the years before the digital payments company’s staggering collapse.(Germany)
- In Feb 2022,the Court of Appeal ruled that CMA should probe audit firm Ernst & Young on Uchumi forged books(Kenya)
- In the year 2022, The Capital Markets Authority (CMA) of Kenya fined Deloitte Sh10 million for failing to detect a fake Chase Bank account(Kenya)
- In the year 2019, PricewaterhouseCoopers and EY were fined a combined £9.3m for a series of failures in auditing the accounts of London Capital & Finance, the collapsed mini-bond firm that wiped out the investments of thousands of savers.(UK)
- In the year 2018, he UK’s accounting watchdog, the Financial Reporting Council (FRC), announced that it had imposed a fine of 1.46 million pounds ($1.90 million) on KPMG for ‘basic failings’ in its 2018 audit of advertising firm M&C Saatchi plc.(UK)
The list of alleged failures is endless. Medium tier and small accounting firms are only spared from the publicization since most of them don’t audit public companies.
I keep asking myself, is a week or two of audit work enough for an audit firm to give an assurance that accounts reflect a true and fair view?
Is the limited time also enough to detect fraud? In most cases junior auditors do the bulk of work. Understanding a company’s operations and procedures at times is tough.
While not diminishing the role external audit, it is important that organizations invest in strong governance structures, internal control systems and robust internal audit departments.
Having a strong Internal audit department that is directly appointed by the owners/shareholders of the business will fill the gaps that external audit cannot fill.
Internal audit can be either conducted internally by an independent team or by an outsourced firm. Whichever way, firming up internal audit is the way to go.
