The State of the Auditing Profession: Hidden Figures and Shared Accountability

The recent collapse of BF Borgers CPA has once again brought to light the troubling state of the auditing profession in the United States. Despite a Treasury Department report offering recommendations for improvement after the 2008 financial collapse, it seems that little has changed in the industry.

BF Borgers, once one of the largest audit firms in the US by number of clients, focused on smaller reporting companies that benefited from its low audit fees. However, the Securities and Exchange Commission accused the firm of selling fraudulent audits that did not meet auditing standards set by the Public Company Accounting Oversight Board. The firm ultimately shut down its public practice and agreed to pay $14 million in penalties, raising questions about the true impact of these penalties compared to the profits derived.

The pressure to compete on price has created a toxic work environment within many audit firms, leading to overworked auditors, high turnover rates, and compromised audit quality. Reports from firms like PwC show staggering amounts of overtime worked by audit associates, senior associates, and partners, highlighting the strain placed on auditors to meet profitability targets.

Oversight concerns also plague the industry, with delays in PCAOB inspections and disciplinary orders diminishing their relevance. The slow implementation of new quality control standards and proposals further hinders progress in addressing systemic issues within the profession.

Regulatory saturation, with numerous new standards introduced by the PCAOB and the Financial Accounting Standards Board, adds to the compliance burden on audit firms and detracts from efforts to improve audit quality. The SEC’s decision to shorten filing timelines may also contribute to rushed audits and compromised quality.

All stakeholders in the auditing profession must acknowledge their role in perpetuating systemic flaws and work together to address the challenges facing the industry. The numbers tell a story of shared accountability, and it is crucial for all involved to confront the sobering truths revealed by recent events in public accounting.