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Well no surprises there but it's a bit thick to blame it all on the actual auditors. A lot of the 'misses' are directly due to misrepresentation by the Directors and their accounting delegates. In the computerised world in which we live it is very easy for naughty people to hide things from sight and much more difficult for the auditors to spot it. The sheer volume of figures suggests that it is becoming an impossible task. I recall that Carillion foundered because an in house accountant blew the whistle on some shortcomings. I also recall that she had been there about 3 months. This implies that 3 months involvement in the Company threw up shortcomings but how would auditors spot that in 3 weeks of an audit.
It's all very well for the MPs and the FCA to throw up their arms in horror but they have no idea of the problems faced at ground level and like most people in such positions they talk off the top of their heads.
I am not an apologist for the big firms but I do think that the arguments are a bit one-sided. The whole system of audits needs to be rethought and viewed from a totally different perspective. The MPs and FCA will not help by trying to be clever when they are not.
Tolerant mindset, tight deadlines, complex judgements, familiarity? As one who lectured on auditing, this is old stuff, and all the vaunted changes in auditing standards and regulation appear to have made no difference. The auditing firm's bottom line and competitive edge remain paramount, and the only important risk assessment seems to be the danger of getting found out! It's no surprise that ARGA is being formed to chastise naughty auditors. The profession is headed toward loss of self-regulation altogether.
It seems to me that if the big audit firms and indeed the 'entire profession' are all falling short, then there is something more fundamental here and there needs to be a rethink and some honesty about the purpose and limitation of audit.
The usual kneejerk response of piling on more regulation just means that there are more boxes to tick, more forms to fill in, and less time to do any actual auditing, so more corners are cut. And at the same time audits firms are expected to compete for business.
I have some difficulty with the statement "Familiarity arising from long-standing audit relationships, particularly if the company comes to be considered as “the client” for the auditor, rather than the shareholder or investor". Sorry - but the shareholder or investor doesn't in reality appoint the auditors and they don't pay the bill so they are not the client. Perhaps its this elephant in the room that needs to be addressed first.
Sorry but the shareholder or investor does pay the bill albeit indirectly. Perhaps the auditors should reflect on what they are there for rather than adopting a commercial approach to their activities.
I wonder if a detailed examination of the 'nitty gritty' of the failures would reveal some sort of pattern.
The Patisserie Valerie case seemed to revolve around borrowed funds being embezzled. It is difficult to see how these were not secured on something. Perhaps there is a case for lenders to ensure that any charges on assets are reported directly to CoHse. Alternatively, perhaps some sort of reporting facility directly to the auditors for certain types of transactions.