The Economist reviews history and performance of auditing firms. The tone is rather downbeat. Thirteen years after Enron, both the business model and auditors’ performance remain questionable. Independence, reputation risk and legal risk do not suffice to align auditor and investor incentives. Regulation has helped, for example in the form of the Public Company Accounting Oversight Board (PCAOB), due to the Sarbanes-Oxley act. Fundamental change could take the form of nationalisation of audit firms; “financial statements insurance;” or scrapping the legal requirement for audits.

Some quotes from the article:

But such frequent scandals call into question whether this is the best the Big Four can do—and if so, whether their efforts are worth the $50 billion a year they collect in audit fees. … But because the profession was historically allowed to self-regulate despite enjoying a government-guaranteed franchise, it has set the bar so low—formally, auditors merely opine on whether financial statements meet accounting standards—that it is all but impossible for them to fail at their jobs, as they define them. … investors disregard auditors and make little effort to learn about their work, value securities as if audited financial statements were the gospel truth, and then erupt in righteous fury when the inevitable downward revisions cost them their shirts. …

The modern audit does not even provide an opinion on accuracy. Instead, … merely provides “reasonable assurance” that a company’s statements “present fairly, in all material respects, the financial position of [the company] in conformity with generally accepted accounting principles (GAAP)”.