Wal-Mart Audits?

Hat tip to Mark Bailey (a VeraSage Trailblazer) for passing along an article from CFO.com, "Audit-Fee Fall: It's a Matter of Trust."The article discusses how audit fees have fell by an average of 5% to 8% in 2008 (depending on company size), and have continued to fall in 2009, albeit at a slower pace.Lynn Turner, former chief accountant with the SEC is quoted: "We don't view audits as a commodity. We don't want the Wal-Mart audit."He went on to say that lack of confidence among investors in financial statements has been a significant factor in the poor performance of investment markets during the past decade.Really? This is economic illiteracy at its highest (or lowest).You mean the burdensome Sarbanes-Oxley legislation, onerous corporate taxes (the second highest corporate tax rate in the world), costly and useless regulations, and uncertainty over government policy didn't have more to do with the stock market's poor performance?Turner is blaming the thermometer for the temperature. Financial statements are nothing but lagging indicators, and to claim anything else is the equivalent of timing your cookies with your smoke alarm.The article also discusses pushing audit efficiency, but that's not what makes an audit effective.Efficiency is no basis for competitive advantage, since your competitors can adopt the same tactics.I don't want an efficient audit; I want an effective one.The only reason people focus on efficiency is the built-in incentive of the billable hour to reward inefficiency.The other point the article misses is that the audit is an insurance product.As actuaries have taught me, you can't price risk by the hour. But look at how audits are priced.One other interesting point: the last paragraph talks about banks not really caring about audited financial statements. They send in their own auditors to document the existence and value of assets they are lending against.This is an example of why the audit monopoly that CPAs have needs to be relinquished.If you really want to improve the audit, along with investor confidence, open it up to competition. There is no better protector of the investor than a robust competitive market.The audit could stand some innovation.