External Auditors That Don't Doing Quality Audit Work Articles Review

Write a short summary (one summary of both articles) of the case against PwC?

In the articles, the second biggest firm that provides professional services in accounting was accused of failing to detect and report a conspiracy worth multibillion dollars between a defunct mortgage firm Tylor Bean and Whitaker and Colonial bank based in Alabama that offers and supplied loans to TBW. Furthermore, in the articles, the auditing firm provided a clean bill of health for many years before the collapse of the Colonial bank in the year 2009 (McKenna n.p) . However, it emerged that colossal amount of loans from the bank to TBW were given against assured of assets that did not exist.

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The firm put a spirited argument that there were a group of fraudsters who were determined to dupe the firm thus the firm was not liable for the loss. In the proceedings, however, it was discovered that auditors often fail to detect fraud, and also they do not comply with the auditing standards that require them to look and identify any fraudulent activity in a company they work for according to Judge Rothstein. In a response statement, PriceWaterhouseCoopers released a statement in support of the first ruling where the judge rejected all claims asserted by colonial bank group and several requests by the FDIC. Also, the court acknowledged that several employees at the Colonial bank group significantly and ardently obstructed the auditing processes by PricewaterhouseCoopers. However, according to FDIC who filed a different case against the auditors argued that had the firm auditors conducted themselves according to with the professional standards that are applicable they would have detected the fraud in TBW on time and avert additional losses suffered by colonial. From the article, the auditing firms are usually the beneficiaries of an old doctrine of common law called Pari delicto where a wrongdoer cannot sue another for proceeds of their shared misconduct (McKenna n.p). Therefore, in this case, the auditors are prevented from being sued by their companies for failing to uncover or expose fraud hence FDCI moving to sue the auditors directly (FDIC Files First Lawsuit Against Auditor Of Failed Bank, Targets Pwc n.p)

What is your opinion/reaction to the charge against PwC?

According to my opinion, the auditing firm was negligent in detecting and reporting the anomalies that lead to loss of 2 billions of dollars and consequently collapse of Alabama Colonial bank. However, despite the judge ruling on PwC violation, it is evident that a few employees at the bank were also to blame they interfered with the auditing process. Evidently, it will be a significant blow to PWC firm if the court rule that they pay for damages and loss incurred because of the fraud.

What do you believe is the main contributing factor(s) to a major accounting firm like PwC doing deficient work?

In enhancing efficiency in auditing the firms should ensure that the inputs are well covered and included at the onset of accounting processes, the inputs include factors such as values, knowledge, necessary skills, the experience of auditors, time allocated for the audit and ethics are key contributing factors in quality auditing work. Correspondingly, the process affects quality, in this case, the firms should have clear audit quality control procedures and audit processes place. Additionally, an output which includes having the reports and all necessary information are essential in quality audit, and lastly, the contextual factors and critical interactions within the process such as stakeholder's communication both formal and informal and other environmental factors are primary contributing factors for quality auditing work.

What impact or effect could this type of (deficient) work have on the accounting profession and the business industry? Explain

External auditors are primarily associated with improved system and controls by identifying deficiencies in an organization accounting system. Similarly, external auditors ensure credibility in the business market and give confidence to shareholders hence in such a scenario where fraud goes undetected leading to losing millions over the years makes the auditing process incredible and insignificant in providing checks and balances in accounting. Additionally, the image is distorted as many businesses will not see the value of auditing their organizations unless it is for statutory purposes only. Consequently, the shareholder's confidence level will go down leading to decline and slow investments as the control system which ensures the safety of their investments is questionable.

Can you think of the possible solution(s) to the concern of external auditors not doing quality audit work?

By formation of auditing committees which reviews the audit firm before any reappointment to ensure that the right firm is given the job to audit. Further, the auditing firm has an obligation in ensuring that it hires highly skilled auditors who will provide quality services and in case of falling short of their expectations the auditing firm should not shield auditors from prosecution. Additionally, they should have quality check procedure before releasing any auditing report to ensure that the report has covered all the necessary inputs, the processes have been followed, and outputs have been well prepared.

Works cited

"FDIC Files First Lawsuit Against Auditor Of Failed Bank, Targets Pwc." U.S.. N. p., 2018. Web. 19 July 2018.

McKenna, Francine. "FDIC Win Against Pwc Could Finally Force Auditors To Look For Fraud." MarketWatch. N. p., 2018. Web. 19 July 2018.