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KPMG Executive Shares View of Auditing Today

"We work for the audit committee, with management, and on behalf of shareholders."
-- Timothy Flynn

Timothy Flynn, vice chair of KPMG's Audit and Risk Advisory Services, reviewed the new world of auditing in his February 26th presentation to more than 150 accountancy students in the College of Business. Called a "true mover and shaker in public accountancy today" by department head Ira Solomon in his introduction of Flynn, the Minnesota-born CPA took a whirlwind look at the changing profession and environment of accountancy.

So what is different today? Recent scandals have severely damaged public trust in corporate America. In response, federal regulation has imposed tighter rules on corporate conduct. The need to restore public trust and confidence in American business and in the capital markets is, said Flynn, "job one."

Corporate Challenges, Accountancy Challenges

Corporate America now has to focus on financial reporting quality and accountability. Strengthening a company's financial architecture and enhancing its governance processes will provide the ability to meet the requirement imposed by new regulations and enhance the credibility of financial information. Also key is seeking qualified, involved board members.

In accountancy, the focus is on the audit business. The new world of accounting, which includes the various rules imposed when Sarbanes-Oxley passed in 2002, reaffirmed the role of auditing, according to Flynn. This affirmation has empowered the profession and given members of the profession the ability and regulatory backing to sometimes say "no" to clients. Flynn believes a KPMG audit team "works for the audit committee, with management, and on behalf of the shareholders."

In response to these evolving responsibilities, KPMG rethought its audit methodology. In an initiative Flynn organized and that he called "Project Clean Slate," KPMG took a new look at its approach to auditing because of the changing business and regulatory environment. One modification was to create a team of independent KPMG staff who function as an internal due-diligence team, taking a fresh look at each audit client and at the work of the KPMG auditing staff assigned to the client. The due-diligence team members, made up of a variety of specialists and functional experts, conduct interviews and look at the big picture. By using these specialists, said Flynn, "We're drilling down deeper now."

The company is employing the latest tools and technologies in addition to their highly skilled work force. Computer Assisted Audit Tools (CAAT) are used for data mining, to analyze available data and cross check data points. CAAT gives KMPG staff a new way to look at a company's audit information. Flynn finds real value in these new technologies and said that this sort of digging is an intellectual challenge.

The Impact of Sarbanes-Oxley

So-called 404 audits, which require certification of the effectiveness of company's internal controls, are "the biggest change to our profession since the 1933 and 1934 Securities Acts, bar none," according to Flynn. Because Section 404 of Sarbanes-Oxley requires that an outside auditor attest to the accuracy of the company's 404 statement, KPMG is spending 30-50% more hours per client conducting audits. Flynn sees this new rule pushing the auditing market to evolve.

Flynn believes the 2002 passage of Sarbanes-Oxley has been good for corporate American and good for the accounting profession. "We can't single out the accounting profession," he said. "We all have a responsibility to bring back integrity to the US capital market."

--Ginny Hudak-David
March 2004