Tweedie: ‘Hopeless’ reports undermine audit

ICAS president Sir David Tweedie warned the audit profession it had reached a “tipping point” during an online Q&A on the institute’s website last week.

With the statutory audit in the spotlight, Anne Adrain asked how the profession could regain trust and confidence in the audit process and emphasise its importance?

“I believe the audit is at a tipping point,” answered Tweedie. “The audit report at present is hopeless. It's full of who is responsible for what, and it's difficult to find the auditor's opinion. During the crisis, for several audits...

Continued...

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Comments

Hopeless reports undermine audits    1 thanks

mmalhotra | | Permalink

Sir  my question is that audit has no value. The client does not get any benefit apart from a huge audit fee. The investors trusted the audit reports given by the auditors of banks. Look what happened to the investors. I have lost over £50,000 in my investment in banks shares. If the audit had any proper value the auditors would have been able to detect any wrong doing going on in banks but the audit procedures and the auditors failed miserably in performing their duties and walked away free as the bankers..  It does not matter how you twist and turn the audit report it will not make any difference. I think the audit standards and boards are just a waste of money and jobs for the boys. I would like to ask Sir Tweedy to name a single company which has benefitted from audit. Michael  

Laugh    8 thanks

The Black Knight | | Permalink

"Tweedie sought to reaffirm that investors were the auditor’s real client, not management, and to serve their needs he wanted to see audit reports to paint a more realistic picture by covering what kept the auditor awake at night; where they disagreed with the CFO; whether they were concerned about any contentious accounting policies; and their going concern assumptions."

This man invented pointless reporting?

perhaps we could have.

" we directed our tests to prepare a flawless file for the JMU, this is what kept the manager awake at night together with the fear of loosing his job if he did it properly and thus spotted an error that needed correcting causing the job to be over budget. The firm has a proactive attitude towards not having a can do attitude."

" nothing has come to our attention as usual, as you might expect and as the report is never read by anyone except lawyers you can skim over this and get on to the other bits you cannot understand either"

"our tests specifically excluded subsidiaries, foreign branches, dodgy tax schemes, and other difficult areas to keep within the budget and concentrated on putting untrained staff on site to demonstrate the fee"

" the business plan prepared by us shows that the entity is a going concern because if we thought differently it would be come a self fulfilling prophecy and we would then be sued if it turned out someone had a different opinion based on perfect hindsight of the future"

Clients benefiting from audit    1 thanks

mike_uk_1983 | | Permalink

Some clients do benefit from their audit. I have carried out a number of audits where we have found things which either save the client money or earn them additional money.

 

However I do agree with Black Knight that most audit reports would end up like that. 

 

I think if the client values an audit and is willing to pay a fair price for the audit and have a good firm of auditors they are more likely to receive a good service and gain value from the audit. The value to the client should come from the management letter report.

 

However when the fee is driven so low by the client there is no way a decent audit can be achieved then no value will be obtained as the parts which gain value to the client go above the ISAs minimum requirements and are likely to be the bits dropped when trying to meet a budget.

yes but    2 thanks

The Black Knight | | Permalink

mike_uk_1983 wrote:

Some clients do benefit from their audit. I have carried out a number of audits where we have found things which either save the client money or earn them additional money.

Did this occur because of audit tests or because you happened to be there and did some non audit work?

I remember picking up a bank error that paid for the audit once I had drawn it to the attention of the bank. But this was using my skills as an accountant not as an auditor. Had I used audit techniques the bank difference would have fallen below materiality and in those days probably non adjusting errors.

I think if you are any good you have a nose for these things, but that is not required to be a successful auditor. In fact it is a positive hindrance.

 

 

KPMG    2 thanks

nigelsennett@bt... | | Permalink

 

 

How did KPMG fail to spot the failings of HBOS even after the most senior credit manager voiced concerns???????????????

added value    2 thanks

The Black Knight | | Permalink

<a href="mailto:nigelsennett@btinternet.com" rel="nofollow">nigelsennett@btinternet.com</a> wrote:

How did KPMG fail to spot the failings of HBOS even after the most senior credit manager voiced concerns???????????????

because of pressure from the  1. fee 2. management 3. the partner

You can bleet on all you like about audit independence but it don't exist in the real world.

Added to which the management have a responsibility to make sure their accounts show a true and fair view, just because the auditor did not spot it or report it does not absolve them from their responsibility.

Did they know? did they ought to have known? of course....is this a criminal offence? YES have there been any prosecutions? NO

THAT is the way to ensure an Audit adds value?

The entire system is flawed then? Rules but no enforcement (modern government for you?) Each department has spent their budget on mud slinging and spin to divert attention from their incompetence though.

And the Truth is

johnporter | | Permalink

The Ordinary middle class person saving into a pension or holding some shares in these Companies especially the Banks get pissed on again by the Knights of the Realm(or ex) who at in days of yore were there to protect the citizens of the country not shft them

Agreed

mike_uk_1983 | | Permalink

The Black Knight wrote:

mike_uk_1983 wrote:

Some clients do benefit from their audit. I have carried out a number of audits where we have found things which either save the client money or earn them additional money.

Did this occur because of audit tests or because you happened to be there and did some non audit work?

I remember picking up a bank error that paid for the audit once I had drawn it to the attention of the bank. But this was using my skills as an accountant not as an auditor. Had I used audit techniques the bank difference would have fallen below materiality and in those days probably non adjusting errors.

I think if you are any good you have a nose for these things, but that is not required to be a successful auditor. In fact it is a positive hindrance.

 

 

 

I agree actually it was because I questioned things that did not look right. I guess as you say by spending that time added to the budget and would have caused problems but is in reality what should be done on an audit to help the client.

With the Big4 outsourcing to India etc...

duncanphilpstate | | Permalink

I understand that the Big 4 are now outsourcing the back office pieces of the audit to India and similar places where labour comes cheap but reasonably educated. Exactly what the back office parts of an audit are escapes me as my audit experience taught me yo uhad to be based at the client digging in their files most of the time, or possibly in the office doing review work if you were further up the hierarchy. My older accountant friends are similarly bemused.

I assume there's a lot more analytical review than there used to be, which may perhaps keep costs down and meet true and fair requirements after materiality but by and large is not going to "find" anything untoward.

I suspect the motivation is keeping costs down and not making the graduate intake do anything beneath them like rummage around in invoice files.

 

Tweedie's right    1 thanks

duncanphilpstate | | Permalink

It seems to me that the audit report these days is devoted mostly to explaining why it isn't the auditor's fault because it's the directors' fault, and that even if it is the auditor's fault, the assumptions and tests made the conclusion reasonable.

Most of this guff woud be known to anyone skilled enough to read and understand the accounts, sorry, financial statements in detail and those who take a quick shufty probably won't follow the subtlety of the report anyway.

There's probably a certain amount of misbehaviour going on in subsidiaries anyway which doesn't count as material at the group level so can safely be ignored.

It does make you wonder if old-fashioned simplicity and brevity was a good idea after all.

 

nigelsennett@bt... | | Permalink

 

Why doesn't the governement not sue the auditors on behalf od the taxpayer?

 

The million pound bonuses are a direct result of the fact that so few players are in the industry.

 

There is no justification for these people getting such bonuses as banks are parasites.  All the people earning this sort of money are idiots.

Tom 7000's picture

Qualifying accounts

Tom 7000 | | Permalink

I have qualified accounts for all sorts of things, I remember convincing the partner signing it off  when I was a new ACA 20+ years ago to stick in the audit report we were unsure if the accounts had a true and fair view as we  ( meaning me) found the second set of books....

 

Honest....funny as fish ...when you look back

 

It all boils down to Integrity...which can be swayed by massive fees... so the 15/10% limits the ICAEW have are in my opinion too high and they should be...3%...which is what our biggest fee is...see there you go more self interest...

 

But then what do I know...

Ermintrude's picture

Pointless Profession

Ermintrude | | Permalink

I worked for the Audit Commission for a while - and have posted examples of their uselessness previously.

Yes I too found what amounted to a second set of books in around 2000 for a health board. I told my manager, she said "Well, he's been doing the job for years, I'm sure he knows what he's doing"!

Topically, I found an error in a Best Value Performance Indicator in the police accounts - a wrong population figure meant it appeared from inaccurate statistics that a certain crime detection had fallen considerably - which it hadn't.  Yet my manager still congratulated said force in his report for the imrpovement in the area. 

By far and away the best protection for the public is from the Whistleblowers.

We did to ourselves-    2 thanks

David Gordon FCCA | | Permalink

 The reality is the leaders of the profession screwed themselves.

 Understandably so, but they did.

 For years we have gone along with the fiction that an audit certificate is a clean bill of health. It is not.

 An audit of a company of a size large enough to require a layered management structure  (directors plus more than one level of day to day management) may never be more than a test check.

All we may do is intelligently test check that the company's administrative and or accounting function is working to plan. To do more than that we would have to spend so much time on the client's affairs, that we would inevitably become less than entirely independent. Regrettably the big four have themselves almost been bullied into claiming that the certificates they issue are some sort of inoculation against any form of client wrongdoing.

 How may the auditor of Megabucks International PLC seriously claim to know the company when in most such cases employees/directors who have worked there fifty years still do not know it all??

There is also the point that the more carefully and neatly a client prepares for the audit, the less point there is to the audit, except that to make sure that the client gets his affairs in order for audit. I hope you understand my meaning.

So, audits, are similar to the green and red customs gates at an airport. They will never stop a determined smuggler. But, thank God, they are sufficient to persuade 99% of travellers (Companies) to behave themselves. My experience being that in any case 95% of companies do not need to be nudged, and a nudge in the right direction is enough for the other 4%.

It is high time that our premier division bit the bullet and admitted to this fundamental truth . This might be far more constructive, and cheaper in terms of professional indemnity, than adding layers to an already convoluted audit regulation structure.

As for many so-called investors, they may not deserve to lose their money , but they do sometimes ask for it. Spending less time on researching the companies they invest in, than they would in buying a jar of coffee from the supermarket. "The computer says..."

 

 

 

 

 

 

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Part 2-Do not blame the auditor for the law.    2 thanks

David Gordon FCCA | | Permalink

 Black Knight is reasonably correct in his comments, but:-

 Blame also the state of company law.

 It is ruinous, unless you are a Saudi price or a Rusian oligarch, to fund a claim in company law.

 We had a case where a retail operation went "Bust" one boxing day, and hey! there was no cash (after Xmas trading) and no stock. So half-a-dozen suppliers got together , a rarity in itself, The barrister advised that it would cost more to get the ex-directors into court than we had lost, and the probability of finding the money was almost zero.

There would be loads more prosecutions of crooked directors if it were at all financially possible.

 What is comforting is how financially honest most companies are, given that there is almost no affordable legal sanction that Joe Public may apply against the crooks.

 In fifty years, callow clerk to crusty professional codger, I cannot recall in my clients, more than three or four genuine crook directors. The danger is, if you call people crooks for long enough some weaker ones might take you up on the offer.

 

 

     1 thanks

nigelsennett@bt... | | Permalink

 

 

What has the audit profession done about this scandal?

 

Pretended it never happened !!!!!!!

Tom 7000's picture

My Plan....    1 thanks

Tom 7000 | | Permalink

I want to do HSBCs audit, the fee is £45m....Ill do it for £40m...

 

My audit work...All  i am going to do is sign the report...nothing else...

 

No doubt the ICAEW will strike me off...and fine me £1m....well if they can find me on my yacht in the carribean

 

Disclaimer

By the way the above statement is said in jest if you are an ICAEW member or Inspector I would not compromise my professional ethics for even £400m let alone £40m and it is not the intention of me the firm or the staff to cast a shadow on my or the ICAEWs professional standing and bring it into disrepute. No animals were hurt during the making of this email.