The recent news of Enron Corp.'s need to restate financial statements dating back to 1997 as a result of accounting issues missed in Big Five firm Andersen's audits, has caused the Public Oversight Board to decide to take a closer look at the peer review process employed by public accounting firms.
In the peer review process, accounting firms examine one another and publish opinions that assure investors that audits performed by the firms comply with accounting standards. Each of the Big Five firms, Andersen, Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers, and KPMG, is reviewed by another Big Five firm, and none has ever issued a negative peer review report on one of its brethren.
"How can you have peer reviews and still have these kinds of failures?" asked Charles Bowsher, chairman of the Public Oversight Board, referring to Andersen's audits of Enron. "There appears to be little reason for the public to have faith in Andersen or the peer review process."
Deloitte & Touche performs the peer review on Andersen.
The Public Oversight Board, which was created in 1977 to oversee the accounting industry's self-governance structure, will address the issue on December 4.