April 13, 2008
Questions on KPMG's Audit of New Century
The surprise failure of New Century Financial, one of the country's largest subprime mortgage lenders, has led to an all too familiar question -- how could the auditors have given the company a clean bill of health right up until the collapse? KPMG has some explaining to do. The Sarbanes Oxley Act of 2002 was largely pointed at auditors whose roles in the collapse of Enron and WorldCom drew the ire of Congress. The Act increased auditor liability for inadequate performance, created a new auditor watchdog agency, and added procedural requirements intended to protect auditor independence and enhance auditor quality. Yet -- the same old story -- a firm with a clean audit collapses and the auditor's for the firm disclaim any and all fault. The audit industry mess reflects an inherent conflict of interest -- managers who select and pay auditors are those whom the auditor's audit. We would not let football coaches pay game referees after each quarter, but we allow managers to pay auditors after each quarter. Auditors should report to shareholder or investor groups not managers. Until the basic conflict is cleaned up the salves, such as those in Sarbanes Oxley, will provide only temporary and partial relief.
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The term “ISO” refers to the International Organization for Standardization. You may be curious about the difference between the names of the organization: International Organization for Standardization (http://www.iso.ch/infoe/intro.htm), and the initials, ISO. If it were an acronym, you’d think it would be IOS. But the truth is, it’s not an acronym.
Posted by: environmental aspects | Nov 27, 2008 4:52:12 PM