Auditing in the New Century:
KPMG Director Cites Additional Complexity and Risk
B. Bell, director of assurance research at KPMG,
talked about the 21st century public company audit as the final speaker
in the Spring 2005 Accountancy Lyceum Speaker Series. He described the
current audit environment as one characterized by heightened business
complexity, greater auditor risk, and additional demands for increased
transparence and integrity.
Bell elaborated on the current status of public-company auditing by reviewing
recent changes in the regulatory framework, including the Sarbanes-Oxley
Act (SOX) and the Public Company Accounting Oversight Board (PCAOB). One
such recent change relates to the auditor's responsibility for detection
of financial statement fraud. Related, Bell stressed the role of internal
controls with respect to the auditor's understanding of business activities
sufficient for assessing significant risks in the audit.
As part of the current audit environment, the PCAOB makes regular inspections
of accounting firms that perform public company audits. According to Bell,
these inspections raise the bar on auditor accountability. The PCAOB standards
require auditors, for example, to understand the auditee's business sufficiently
well to assess the risk of material misstatement, and learn what evidence
of fraud is sufficient and appropriate. Bell also gave examples of specific
charges against auditors for violating professional standards, such as
failure to obtain sufficient knowledge of the issuer's business, failure
to conduct adequate assessments of risk, and prematurely truncating analytical
and substantive procedures.
Bell emphasized having adequate, justifiable beliefs as what society
expects from an auditor. He suggested that a prudent strategy for auditors
to face the challenges of their work would be to identify and assess risks
from multiple perspectives and to use multiple sources of evidence, which
he described as triangulation. He characterized risk assessment as a recursive
process involving repeated assessments and responses until the auditor's
goal of having sufficient evidence is met.
About the Speaker
Timothy B. Bell is director of assurance research at KPMG International's
Audit & Advisory Services Center (AASC) in Montvale, NJ. He earned
his PhD in business administration from Oklahoma State University in 1981
and is a certified public accountant and certified management accountant.
He is co-founder, executive director, and managing director-practice of
the KPMG/University of Illinois (UIUC) Business
Measurement Case Development and Research Program and the new KPMG
and UIUC Business Measurement Research Program. Prior to joining KPMG
LLP, Bell was a member of the accounting faculty at the University of
Texas at Austin.
Throughout his career, he has contributed to the accounting profession
by authoring numerous articles published in leading scholarly journals,
including Journal of Accounting Research, Accounting Review,
Management Science, and Auditing: A Journal of Practice &
Theory and in many leading professional journals.