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Auditing in the New Century:
KPMG Director Cites Additional Complexity and Risk

KPMG's Timothy Bell.Timothy B. Bell, director of assurance research at KPMG, talked about the 21st century public company audit as the final speaker in the Spring 2005 Accountancy Lyceum Speaker Series. He described the current audit environment as one characterized by heightened business complexity, greater auditor risk, and additional demands for increased transparence and integrity.

Bell elaborated on the current status of public-company auditing by reviewing recent changes in the regulatory framework, including the Sarbanes-Oxley Act (SOX) and the Public Company Accounting Oversight Board (PCAOB). One such recent change relates to the auditor's responsibility for detection of financial statement fraud. Related, Bell stressed the role of internal controls with respect to the auditor's understanding of business activities sufficient for assessing significant risks in the audit.

As part of the current audit environment, the PCAOB makes regular inspections of accounting firms that perform public company audits. According to Bell, these inspections raise the bar on auditor accountability. The PCAOB standards require auditors, for example, to understand the auditee's business sufficiently well to assess the risk of material misstatement, and learn what evidence of fraud is sufficient and appropriate. Bell also gave examples of specific charges against auditors for violating professional standards, such as failure to obtain sufficient knowledge of the issuer's business, failure to conduct adequate assessments of risk, and prematurely truncating analytical and substantive procedures.

Bell emphasized having adequate, justifiable beliefs as what society expects from an auditor. He suggested that a prudent strategy for auditors to face the challenges of their work would be to identify and assess risks from multiple perspectives and to use multiple sources of evidence, which he described as triangulation. He characterized risk assessment as a recursive process involving repeated assessments and responses until the auditor's goal of having sufficient evidence is met.

About the Speaker

Timothy B. Bell is director of assurance research at KPMG International's Audit & Advisory Services Center (AASC) in Montvale, NJ. He earned his PhD in business administration from Oklahoma State University in 1981 and is a certified public accountant and certified management accountant. He is co-founder, executive director, and managing director-practice of the KPMG/University of Illinois (UIUC) Business Measurement Case Development and Research Program and the new KPMG and UIUC Business Measurement Research Program. Prior to joining KPMG LLP, Bell was a member of the accounting faculty at the University of Texas at Austin.

Throughout his career, he has contributed to the accounting profession by authoring numerous articles published in leading scholarly journals, including Journal of Accounting Research, Accounting Review, Management Science, and Auditing: A Journal of Practice & Theory and in many leading professional journals.

--Smita Krishnaswamy
May 2005