ONE in five audits conducted by the nation’s major accounting firms delivers an opinion that the auditor cannot verify, according to a review by the corporate regulator that calls for broad improvements in practices.

An inspection of auditors by the Australian Securities and Investments Commission has detailed systemic problems within the sector, including a widespread failure of auditors to perform “mandatory” procedures.

ASIC reviewed 95 audits conducted by 19 major Australian firms categorised as “national” or “network” firms.

Of the audits conducted by national firms — global firms with national partnerships such as the big four accounting firms — one in 10 did not hold sufficient audit evidence to support all “key conclusions” made by the auditor.

For “network” firms — those firms operating as individual offices under the banner of international brands — a massive 30 per cent of audits failed to support key conclusions.

“There (are) cases where the necessary audit evidence and analysis to support the audit opinion was not obtained or performed,” the report says.

“There may be no material misstatement in the audited financial report, but if evidence and analysis are not obtained or performed the auditor does not have a basis for their opinion.”

ASIC said the global financial crisis had raised more concerns about the conduct of auditors but “Australia’s audit regime compares well internationally”.

CPA Australia chief executive Alex Malley said ASIC’s report was a “cause for concern”.

“The report highlights that documentation needs to be improved and that’s something CPA Australia has identified in its own quality assurance reviews,” Mr Malley said.

“Further work is being done on the development and enhancement of auditing and accounting standards and the profession is collaborating globally on an unprecedented scale to improve the processes.”

ASIC did not disclose which accounting firms it investigated under the program.

Major accounting firm PricewaterhouseCoopers said it had participated in ASIC’s audit inspection program for each of the past four years and called for ASIC’s findings into firms be made public.

“We are pleased that each year ASIC has concluded that the audit work conducted by PwC is performed to a good standard,” PwC partner Valerie Clifford said.

“We would welcome and encourage the public reporting of ASIC’s findings of individual audit firms.”

Accountancy firm PKF was unavailable to comment yesterday.

KPMG did not return calls.

Consumer groups have accused ASIC of failing to enforce penalties that were adequate to deter auditors breaching obligations.

In one of the biggest cases against major auditors in recent years, ASIC in August last year banned three KPMG partners from acting as auditors after an investigation into the 2005 collapse of the $300 million Westpoint property empire.

The penalties enforced by ASIC — which included temporary auditing bans for the men of between nine months and two years — were seen as light, given the weight of ASIC’s allegations.

(www.theaustralian.com.au)