Auditors act as a line of defence for investors, providing an independent assessment of the truth and fairness of company's financial results.
But high-profile bankruptcy scandals at Enron, WorldCom and Parmalat shattered confidence in the auditing industry, and bosses at the Big 4 firms expressed frustration on Thursday at this week's Refco bankruptcy.
"It's not helpful. It looks really bad for ... auditors and investment banks involved in the flotation; people aren't getting the message," Michael Rake, Chairman of KPMG International, told Reuters on the fringe of the Global Public Policy Symposium conference in London.
Refco Inc and certain subsidiaries filed for Chapter 11 bankruptcy protection on Monday as the company's stock collapsed in the throes of a debt scandal.
"For too long auditors have recognised the expectation gap between what they can do about collusive fraud and what investors expect," James Turley, Chairman and Chief Executive of Ernst & Young, told Reuters.
"Refco raises again the whole focus on collusive fraud. It's something the investment community and auditors need to get their heads around."
Watchdogs at the conference supported the notion of a separate fraud audit, as a voluntary option, but senior executives at the so-called Big 4 accounting firms cast doubt on this, citing problems of expense.
"Could a company engage an auditor specifically to report on fraud? It's really an area that needs to be looked at," Jeffrey Lucy, Chairman of the Australian Securities and Investments Commission, told the conference.
And Paul Boyle, the Chief Executive of the UK's corporate governance watchdog, the Financial Reporting Council, told Reuters he supported the idea.
"Fraud audits are worth exploring. Companies could buy these additional audits, it would be interesting to see if investors agreed they were worth the money."
Senior executives at accounting firms said such audits could be extremely expensive, given how exhaustive they would have to be. Instead, they said they were investing heavily in stepping up forensics in their regular audits.
"All six of the largest accounting firms have hired hundreds of people with special skills in forensic reviews, with investigation skills," Samuel A DiPiazza, Chief Executive of PricewaterhouseCoopers, told Reuters.