Accounting firm KPMG's public release of its full inspection results over the past week raises more questions than it answers.
The firm is to be applauded for being transparent about the findings from the audit inspection process run by the corporate regulator, the Australian Securities and Investments Commission, but the fact is that the inspection results are opaque and written in audit jargon for them to mean anything to the average person on the street.
You can characterise the reports as ASIC calling out poor audit practice. That is one way in which you can capture a narrative. It is certainly the one that ASIC is most likely going to prefer.
The image of the corporate cop telling the firms across the board that they have been naughty and they should improve for next time is kind of interesting but not what anybody that has knowledge of how the law about auditing operates.
KPMG's inspection results detail allegations of breaches of auditing standards. It is difficult to describe the document as containing anything else to be quite frank. The firm and ASIC may have differing opinions on the severity or even the notion that something identified by an ASIC inspector is a breach.
The correctness of ASIC's inspectors' assertions is contestable? It appears so.
It results in a to-and-fro between the two parties that is difficult to resolve because, you see, neither is a disinterested adjudicator seeking to determine whether audit practice in either set of eyes is correct and in accordance with the law as is set down in the ethical standards, auditing standards and the Corporations Act.
That fact alone should encourage people to treat the reports when they are issued with a great deal of scepticism because ASIC is a regulator rather than a court of law.
There is no obligation on a firm to agree with the regulator on an observation the regulator has made in the context of a specific audit file reviewed. No obligation whatsoever.
Deloitte wrote to ASIC opposing the naming of firms for the purposes of ranking with results, which is understandable given that their results from the last round of inspections were the worst of the Big Four firms.
A series of letters were released under Freedom of Information that provided evidence of a to-and-fro between Deloitte and the regulator on the impact of naming firms and the suggestion that naming could result in certain findings being challenged more aggressively.
This is an indication that the process could be regarded as one where the firms and a regulator engage in a kind of dance, a performance, a piece of regulatory theatre that seems to not result in a tangible disciplinary result where substantive allegations of breaching auditing standards are made.
It is understood that people at the corporate plod are looking at a canvas and trying to paint a much broader picture of what should be considered as being audit quality and how firms ought to be inspected in the future.
This will be good to have done so there is a better understanding of what audit quality is but that still means one thing needs focus.
The little dance surrounding the correctness of ASIC's assertions must end. Disputes about what auditing standards mean in this marketplace need to be resolved by some kind of judicial or quasi-judicial process with an appropriate enforcement sanction hitting the auditor and audit firm concerned should ASIC's view win the day.
It is beyond pathetic that there is a former chairman of the regulator, Greg Medcraft, stating that ASIC was soft on auditors during his term.
ASIC needs to toughen its stance and do so by taking enforcement action that is clearly justified on the evidence obtained. It is enforcement that will be noticed by people.
Issuing reports over which people can haggle over or argue about like a bunch of Collingwood supporters in the bleaches chucking a tanty over a bad call by an umpire is for everyone a pure waste of time.
Tom Ravlic is an investigative journalist specialising in corporate governance and financial matters. His book - Vulture City: how our bankers got rich on swindles - is now available via www.wilkinsonpublishing.com .au and other online bookstores.