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Friday, October 14, 2005

The auditors' progressive voice

The US leader of PwC, one of the big the global accounting firm, is discussing a very bruising experience. Dennis Nally, chairman of PwC's US business, is directing his firm's sensitive task of declaring whether audit clients have effective financial controls to prevent fraud and ensure accurate accounting.

PwC had by the end of August reported on the quality of internal controls at 717 companies and issued negative verdicts at 94 of them. It was the first time that PwC had given such verdicts and, Mr Nally, says: "The stress levels between [companies] and their auditors were at an all-time high."

Proof that the process has been bruising is illustrated by Mr Nally's admission that PwC decided to sever ties with a handful of audit clients and that a limited number of companies opted to ditch the firm.

The evaluation of internal controls was stipulated in section 404 of the 2002 Sarbanes-Oxley law on accounting and corporate governance but the requirement only took effect last year. Many public companies have been horrified by the cost of reporting on the quality of their controls.
Companies spent huge amounts on documenting and testing the controls, before management reported on their effectiveness.

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