The Truth About Public Accounting: Understanding and Managing the Risks the Auditors Bring to the Audit

by Robert A. Conway

The Truth About Public Accounting This book was written to help audit professionals, audit committees, and regulators understand the web of auditor conflicts that threaten audit quality. The conflict between audit quality and profitability, coupled with the ill-effects of commodity pricing, has put large firm auditors in a squeeze for both productivity and audit quality. The resulting “heavy workload – high turnover” business model is inherently inefficient and a mismatch for the complexity auditors need to master to deliver audits of suitable quality. The author debunks the "Best Places to Work" surveys that reflect so favorably on the Big Four. He also faults the PCAOB for failing to do anything in its 18-year history to remedy the mismanagement of human capital by the largest audit firms. The author describes how and why audit committees should determine whether the human capital conducting their audit has been mismanaged (as evidenced by excessive partner and staff workloads, low year-over-year continuity, low staff experience levels, high leverage ratios of staff to partners, and under-delivery of expertise from specialists). If auditor human capital has been mismanaged, the audit committee needs to understand, "What did the audit firm do to assure that audit quality was not compromised?" This book also describes the conflicts between audit quality and client retention that can undermine the audit partner’s fortitude to do the right thing. Audit committees will learn how they can mitigate the many risks the large audit firms bring to each audit. The author also presents data, academic survey results, and anecdotal information that question whether PCAOB inspections are excessively focused on internal controls to the detriment of attention to audit procedures that assure reported results comply with GAAP. The author’s views are rooted in facts drawn from the Big Four transparency reports, PCAOB inspection reports, reported audit failures, academic studies, SEC and PCAOB speeches, and "Best Places to Work" surveys. Robert Conway’s 360° View of the Auditing Profession The author is a retired Big Four audit partner. He also spent nine years at the PCAOB leading inspection teams and led the PCAOB’s Los Angeles and Orange County offices. More recently, he worked for three years as a consultant to public companies on technical accounting issues and SOX 404 compliance.

179 pages, Kindle Edition

Published August 28, 2020

Reviews

[Patrick Hurley · Rating 3 out of 5]

I enjoyed this book a fair amount (full disclosure: I have a PhD in accounting and am an auditing professor who has experience working at a Big 4 accounting firm). The author has great ideas and suggestions, and draws on a wealth of experience in different roles (e.g., Big 4 audit partner, PCAOB member). The result is a number of smart recommendations to drive audit quality, the PCAOB, and firms’ human capital management to vastly improve. I certainly hope firms will listen to these recommendations, because it will help retain key employees for longer periods of time.

Where the book fell a bit short for me: 1) the organization was okay at a high level, but often broke into exceedingly short miniature sub-sections that ended up being distracting rather than being presented as one comprehensive narrative; 2) at many points the book simply repeated paragraphs of quotes from academic papers, speeches, response letters, etc. This is not a huge problem per se, but I would’ve appreciated a more thoughtful integration of the points into the authors’ “story” so to speak; and 3) some issues with the printing and typos and such (just a pet peeve of mine....this may not bother some).

Overall, worth the read, although it’ll take a little more effort than it should to get through it. It is also a very short book (180 pages excluding appendices, and seems to be typed in size 14 font???), which makes the effort discrepancy described in the preceding sentence a little disorienting.