International watchdog agencies have complained that the Czech business environment lacks transparency. Dirk Kroonen, country managing partner for Ernst & Young Czech Republic, tells The Prague Post that corruption and fraud is indeed a problem here. Yet he rejects that auditors should share responsibility for not discovering questionable financial practices. He also discusses the lessons that auditing firms have learned from corporate accounting scandals in the United States.

1. What does an auditor have to do to earn the trust of its customers?

We spend a lot of time making it clear to our people that integrity, respect and doing the right thing are vital. That is the only way we can earn the faith of our customers.

2. What's your strategy for making Ernst & Young the leader on the Czech market?

We always strive to have market-leading growth, but only growth that leverages great people driving great service — not the other way around. [We're not interested in] going out to sell, sell, sell, then trying to figure out whether we have enough people to do quality work. We've got a good share in the audit business, but our growth in the Czech Republic comes from consulting. In 2005 we achieved 17 percent revenue growth here.

3. How competitive is the market for major auditing firms?

In the Czech Republic, I think the four big companies on the market [PricewaterhouseCoopers, Deloitte, Ernst & Young and Accenture] are comparable. I believe our advantage lies in our current growth. According to data from the two previous years, we were the fastest growing company among the Big Four.

4. The Czech business environment has been repeatedly criticized for lacking transparency. If this is true, do you feel auditors should share some responsibility for not uncovering more unethical practices?

It is a widely held misconception that auditors are responsible for preventing and detecting fraud. This is the primary responsibility of the organization itself. Although we do provide companies with advice on how to better protect against the risk of fraud, this is not part of an audit.

5. How often do you encounter situations where you are suspicious of corruption when conducting accounting audits for companies, either in the public or private sector?

Corruption is unfortunately a part of our society. I believe that all the regulatory changes and the cultural changes companies [have undergone as a result], will reduce the number of scandals. But you cannot eliminate [corruption].

6. Is it good that only four firms dominate the market, effectively locking others out? Do you think that in a few years the Big Four might be the Big Three or Big Five?

Fifteen years ago there were eight. The movement from eight to [four] was voluntary. It was driven by a variety of factors. Very important was the need to [create companies with] the critical size necessary to deliver high-quality services all over the world. It's unlikely that any of the Big Four will not be here [in the future] because all of us are focused on the same issues and improving ourselves as quickly as possible. Likewise, I think it is unlikely — because the [companies are so much larger] today — that a fifth big firm could emerge.

7. Recent corporate accounting scandals have led to new regulatory measures affecting companies and accounting firms around the world. Could it be dangerous?

The regulations — Sarbanes-Oxley in America, the 8th EU directive and similar initiatives in other places around the world — are very good. There is a risk, however, that the complexity of financial reporting will outstrip the ability of a private investor to understand it. But I have great confidence in the regulatory entities that are springing up around the world.

8. Could cases such as Enron happen again?

The behavior of management is different than before Enron. The activities of audit committees and supervisory boards are focused more on the reliability and transparency of financial statements. The behavior of audit firms is different, too. So the risk of a new scandal is lower.

9. Has the Big Four learned any lessons from the scandals?

When it happened, we all felt responsible for doing all we could to reengineer and restructure our entire business. In every profession, trust is difficult to regain once you've lost it. We are restoring trust among corporations and in financial markets.

10. Professional services firms often work as business consultants. What's the best advice you've ever received?