International Audit Quality

Among those charged in the Stanford fraud is a former chief of Antigua's financial regulatory commission. From USA Today:

Leroy King allegedly was paid more than $100,000 in bribes in exchange for his positive reports on Stanford's Antigua banking operation before it collapsed earlier this year, according to a federal indictment unsealed in Houston Friday.

Even though the U.S. Justice Department is stepping up FCPA enforcement, bribery seems to be becoming even more prevalent overseas. With businesses embracing a more global focus, audit firms must have the network and resources to service global clients. However, I imagine that audit firms face major challenges in ensuring audit quality overseas, especially in less-developed nations.

In many less-developed nations, audit firms face the prospect of hiring employees who have been raised in a culture that views bribery as acceptable. Also, accounting education may be of lower quality and audit standards may be less stringent in such countries. Further, because salaries are lower in less-developed nations, firm employees are more likely to be enticed by a bribe from a client.

Leroy King's alleged price, $100,000 in bribes, seems like a very small price to pay to keep a $7 billion fraud running. With huge incentives and a high likelihood of rationalization for international employees to accept bribes from clients, I hope that audit firms have been able to establish effective controls to ensure audit quality overseas. Perhaps the scarcity of cases where auditors have been accused of accepting bribes is indirect evidence that audit firms are able to prevent such behavior.