Philip Fisher examines the latest Institute disciplinary reports and asks: why do firms bother with audit?
Annually, the FRC issues reports confirming that the Big Four firms carry out their audits in a manner that does few favours for the reputation of the profession.
The underlying reasons aren’t always clear, although it is usually suggested that this relates to too close a relationship between auditor and client.
Others may suspect that the reason for a consistently slapdash approach is a desire to cut costs to meet unrealistic fee quotes as a result of lowballing to secure audit and also other work from clients.
Having said all of that, it still comes as a major surprise to discover that a highly respectable and long-established firm of accountants has been hauled over the coals by the Institute’s Investigation Committee for what sounds like drastic audit failure.
To make matters worse, top 100 firm Creaseys has been fined £125,000 plus costs (in total not far short of 2.5% of its annual turnover) for repeated inability to get even the basics right on the same client three years in a row.
According to the report, the £5m turnover firm signed off on an audit for a company that was not in compliance with client money rules. It failed to ensure that shortfalls and internal reconciliations were paid into client bank accounts on a timely basis and did not report the failure to the FSA.
The firm also apparently incorrectly issued unqualified audit reports, and did not adequately confirm that a client company was still a going concern or give an appropriate view on whether cash, bank and client money figures were correctly stated.
Without knowing all the facts, the man in the street might reasonably argue that a firm which is unable to meet a series of standard retirements over a three-year period should withdraw from the field as grossly inadequate.
It is worth repeating that the writer has been a tax specialist since qualification and therefore has no detailed hands-on experience about carrying out audits. However, those involved with disciplinary matters at the ICAEW certainly do and the big fine and severe reprimand speak for themselves.
Enough about Creaseys. It is hard to believe that they are the only practitioners who have screwed up audits in recent years.
Many firms have literally decided that auditing is more bother than it is worth and if the upshot of trying to do your clients a favour is a hefty fine plus costs, you can understand why.
The thing that readers should take away from this column is the need for an even greater sense of caution than we prudent bean counters usually apply.
If you are going to stay in the field of audit, then take all necessary care, even if this means reducing profits on the job (or quite possibly increasing losses).
The failure to do a job properly could be disastrous for your bank balance but, much more significantly, it can take years to repair a reputation that has been damaged by an adverse judgment, whether fully deserved or not.