How to gauge the effectiveness of audits? It is tempting to point to the growing scale of undetected irregularities and outright frauds and conclude that external audits are simply not fit for purpose. Yet there is no objective measure for assessing how much worse things would be without them. What if corporate propriety resided solely in the hands of internal audits, risk and audit committees, and industry and accounting regulators?

Whatever such an evaluation might reveal, it is clear that external audit effectiveness has not kept pace with the growth in size and complexity of entities being audited.