Shouldn’t auditing be easy?

Auditing
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Philip Fisher
Partner
BDO
Columnist
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Some of my best friends are auditors but even they cannot explain why their trade is in a constant state of flux.

It is easy to understand why we tax specialists have a hard life. Twice a year, a man who thinks he knows more about the subject than we do, changes half of the rules.

To make it worse, he and his friends ensure that rather than replacing anything they merely supplement the already hefty statute books.

The same is happening in other countries, meaning that tax really is constantly developing and always getting more complex, despite the brave efforts of John Whiting and the Office for Tax Simplification.

Ultimately, the only purpose of an audit is to give as much of a guarantee as possible that a set of accounts is not materially incorrect - OK true and fair. Admittedly, it is necessary to take care since otherwise shareholders, creditors, bankers or the government might step in and raise merry hell.

What I cannot comprehend is why, having worked out how to prepare a set of accounts that make sense and then how to verify them several centuries ago, members of the profession seem to tinker with those rules almost as often as the chancellor does with tax legislation.

If a set of numbers adds up, cross casts and balances to a load of associated numbers, surely that means that the figures are definitively as good as they can be.

There may well need to be some adjustments for things like depreciation and even taxation, while the requirement to prepare a set of accounts on the accruals basis adds a little more to the burden.

Even so, it is not clear to me why the principles laid down in say the Victorian era, when professionals reputedly tended to be far more careful than they are today, would not work perfectly well.

Computers should have made life easier rather more difficult, while there are enough aspiring accountants or lower-level number crunchers available to do whatever ticking and bashing necessary to provide comfort.

Having explained that, readers could then go step further and help me to get a better feeling for why auditors seem to be criticised and reprimanded on a regular basis for their failure to do all of this correctly, after all of the centuries of practice.

Far worse, they allow companies like Enron to go bust, banks to follow suit and quite conceivably, countries to go down with them.

Nowadays it is a sine qua non that bankers are second cousins to Satan himself, destroying the global economy and sending quite a few governments into the history books before the end of their natural terms.

If we are not careful, some intelligent blighter will add two and two together (for us to audit of course) and come to the conclusion that while the bankers really were rogues, the accountants that allowed them to get away with it were probably not doing too good a job either.

While Andersen’s bit the dust for exactly this reason, it would be a shame to see more supposedly reputable firms go the same way.

Perhaps I’m missing something, in which case a little education from those who really understand these things would be very welcome. Otherwise, I worry for the reputation of the profession.

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By DJKL
13th Oct 2016 18:04

Auditing has I expect changed because how business operates has changed.

Auditing what can be seen is always simple (your I hope tongue in cheek comments re casting numbers) the difficulty is what about the unseen and difficult to measure, that is more like checking an iceberg.

Completeness is always difficult to check. Scrooge & Marley merely had to check Bob's ledgers, they could be pretty sure he was not lending their money to others off the books, they would have heard about what he was doing at the Exchange. Well Scrooge would , Marley was dead: to begin with. There is no doubt whatever about that.

Your Victorian did not have those ever so complex building contract where calculating the completion percentage of a railway bridge re profit recognition was all well and good but they also had to consider the maintenance contract thereafter for the next thirty years when evaluating profit recognition. Life was simpler.

There is also attitude; we were all taught that an auditor was a watchdog not a bloodhound, however I somehow think that approach was alien to the earlier generations.

When I was interviewed for my apprenticeship it went something like this.

" Sit down"

I sat facing a large man wreathed in smoke peering at me across an enormous desk with files to the left of him files to the right, stacked in towers.

"Do you smoke",

After my confirming I did an open packet of Benson and Hedges were chucked across the desk at me with the comment,

"Don't burn the papers"

The next salvo was,

"Bit old to start are you not"

(I was 25 and had worked before University and also between my first non accountancy degree and my PG conversion course) .

Having got past the niceties like these it was then down to the real business,

"Why would you do a bank reconciliation"

I mumbled the response about checking the bank was correct and all the theoretical stuff I had ingested at university, having never actually seen a real cash book or done a real reconciliation.After I finished my answer his response barked back across,

"Fraud, ye dae it ta detect if someone is stealing",

Somehow the watchdog/bloodhound bit seemed to have passed him by.

Now I am not sure all CAs of his generation (qualified I suspect 1940s) were the same, or maybe it was just Glasgow CAs that were so robust, or maybe it was a generation thing; the interview reminded me of talking with a friend of my father who was a Police Superintendent where even good evening held menace.

So I expect the answer lies in business being more complex but auditors being less intimidating and cynical.

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By ShayaG
14th Oct 2016 12:07

One of the few things money cannot buy is independence. And that is why the audit model - particularly the audit model as practice by partnerships where partners are assessed on fee income - is broken.

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14th Oct 2016 17:38

What reputation Philip? You have tax advisers selling tax schemes, to fill their deep pockets, that results in losses of billions in tax revenues and you talk about the reputation of the profession!

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