Issues with 'Big Four' Accounting Firms and Quality of Audit Work

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EXECUTIVE SUMMARY

This report focused on the issues of services rendered by ‘Big Four’ accounting
firms and the quality of their audit work. It is observed that they were providing
non-audit services to the companies under audit. The British journalist unveiled
the truths of these firms.
The report contained history of the audit and conventional methods used to
conduct the audit process effectively. The auditor was used to check the proofs
and sources of each and every number mentioned in the accounting books.
The report also threw light on the modern complexities in the accounting
procedures in terms of disclosures and influence of top managers. Growing
number of transactions has increased the burden on the auditors. Sometimes
this resulted into lacking attention to significant area of concern.
The providing of consultancy services to the companies took away the
independence from the auditors as they are getting high compensation for it.
The economy came across many scandals like Enron and WorldCom.
The repercussions faced by the economy due to such kinds of corporate frauds.
The question mark was put on appropriateness and accuracy of the auditing
firms workings.
The report also stated the recent developments in the field of auditing.
Finally, the report concluded the truth about the influenced audit firms and
misuse of power by the management.
To overcome the challenges and improve efficiency of both the groups,
recommendations are given.

Table of Contents
EXECUTIVE SUMMARY............................................................................................ 2
INTRODUCTION...................................................................................................... 4
THE MEANING OF AUDIT – NOW AND THEN – NEED FOR AUSTRLIA’S BIG FOR
CONSULTANCY FIRMS TO BE UNDER ROYAL COMMISSION....................................4
MAJOR ACCOUNTING SCANDALS AND FRAUDS......................................................6
ENRON- THE BIGGEST AUDIT FAILURE................................................................6
WORLDCOM SCANDAL- 2ND AUDIT FAILURE IN THE BUSINESS HISTORY.............6
CONSEQUENCES OF THE FALLDOWN OF BUSINESS HOUSES.................................7
MEASURES TAKEN TO KEEP AN EYE ON THE MANAGEMENT..................................7
RECENT DAY’S CHALLENGES IN AUDITING.............................................................7
CONCLUSION......................................................................................................... 8
RECOMMENDATIONS............................................................................................. 8
References............................................................................................................. 9

INTRODUCTION
The issue of auditing and assurance services is one of the most challenging and
upsetting now a days because of the growing problems of it and misuse of
governing rights. The ‘Big Four’ firms are the biggest Professional Services
Network in the world. The names of the firms are PricewaterhouseCooper (PwC),
KPMG, Ernst & Young (EY) and Deloitte. Initially, they were Eight in number, but
due to mergers and collapse of one or two firms it reduced to four.They offer
accounting services, audit, management consulting, advisory, corporate finance,
legal advice and actuarial services to all over the world. They conduct audits of
public companies and some of private companies (Alexander, 2016).
Recently, a British journalist exposed the activities of these ‘Big Four’
professional firms in the Australia. He claimed that these firms provided
consultancy services to the firms whose accounts were meant to be audited
independently by them. The consultancy services come under the non-audit
work of the auditor. While providing such services they purposefully ignored the
facts about the firms and actual financial conditions of the companies. The
reason behind their actions was to earn the money and not to provide true and
fair views on the management and financial condition of the companies. In the
process of providing such non-audit services they have lost their voice and
righteousness (Arnott, Lizama, & Song, 2017). They are controlled by the top
management of the companies for their personal benefit at the cost of public
funds. They became dependent on the companies for the big fat fees. They
failed to follow business ethics and statutory services expected from them under
the law. The research has showed that these ‘four firms’ generate only one-third
of its income from providing auditing services and rest 66% of their income is
generated through non-audit services. They produced unqualified financial
reports to the stakeholders without giving attention to the current financial
condtion of the company. The companies which were showing healthy financial
condition in the annual report experienced financial problems in near future and
filed bankruptcy. The ‘outsiders’ became ‘insiders’ without accepting the fact
that it is an offence under the governing act. Their job was to monitor the system
but instead they became part of it. According to them it is a general practice and
they are fair enough in the eyes of the law.
THE MEANING OF AUDIT – NOW AND THEN – NEED
FOR AUSTRLIA’S BIG FOR CONSULTANCY FIRMS TO
BE UNDER ROYAL COMMISSION
Initially, auditing was related to scrutinising of accounts, verifying invoices and
transactions and inspecting assets and liabilities figures. Auditor’s responsibility
was limited to the verification of accounts. Working papers were maintained as
onus of his duty. He used to play with the numbers and checking authenticity of
it (Boccia & Leonardi, 2016). Auditor used to perform all the essential procedures
to obtain reasonable assurance that audited financial reports were not materially
misstated. He had a right to get all the information and clarification regarding
doubtful transactions, figures and invoices. If in the process he came across any