CAMRA: The profession needs a Campaign for Real Auditsby
Another week, another audit scandal. Someone needs to get a grip on audit standards before the profession becomes as much of a laughing stock as our politicians, argues the Imprudent Accountant.
Most accountants of a certain age will be familiar with CAMRA, the Campaign for Real Ale, which is an institution created to promote the joys of warm, not very fizzy bitter.
While it may be less fashionable in these days when cold lager and insipid wine have become the norm, at one time CAMRA was a real power in a country where old fogeys ruled the roost. Nowadays, it can’t even get a share of preferential tax treatment for those few breweries still in the industry.
Today, I want to latch on to something equally arcane but no further from my heart or, I would wager, those of many of my peers.
Campaign For Real Audits
I would like to institute a Campaign for Real Audits. Many old-timers will have recognised that this is much needed, as they read what have become weekly press releases from the Financial Reporting Council outlining belated actions in the wake of horror stories.
In many ways, the names and numbers have practically become interchangeable. Whether it was Grant Thornton getting fined £700,000 or one of the Big Four a significantly larger hit, the principle is the same.
Large firms that specialise in audit services are increasingly being attacked by the FRC due to an inexplicable inability to carry out audits adequately.
Something is wrong in the state of Global Britain when as many audits are carried out badly as well by the leaders of what was once a highly regarded profession.
Most don't have a clue
Ignoring a lovely scandal that I heard on the grapevine involving relatively minor fraud at a medium-sized firm, even those who seem to believe that they are operating honestly and within the guidelines set down for the profession don’t seem to have a clue.
The consequences for society are significant, when businesses go under at vast cost to stakeholders, often including the taxpayer, at a point when the auditors have given no indication of any underlying weakness.
Anyone can make a mistake and I’m sure that somebody will point out the strict limitations by which auditors restrict their work.
Unfortunately, these mean nothing to the man or woman in the street, particularly when they find the value of their pensions diminished as a result of what they would, perhaps incorrectly, regard as negligence by the men in suits.
Monty Python has a lot to answer for, but even those comic pranksters assume that we were good at our jobs.
The risk-reward ratio
Regardless of these minutiae, it is a fact that the FRC seems to be doling out fines for audit failures by large firms on a constant basis and the amounts involved are becoming eye watering to we lesser souls.
The big players seem to take them in their stride, which begs many questions. First, has the risk-reward ratio gone badly awry?
In the old days, I imagine that most accountants would have been terrified of being caught out doing something wrong and felt deep shame.
No accountant will thank me for saying this but one possible solution would be to ensure that audits can only be carried out by businesses that do not benefit from limited liability.
It would certainly concentrate the mind if you knew that any failure by an audit colleague could cost you your house, as was the case a generation ago.
Not fit for purpose
The government determined that the FRC was not fit for purpose some time ago but still seems to be chuntering on in the knowledge that reform is very much needed.
The powers that be need to go back to the drawing board, determine a new set of guidelines which will increase the likelihood that audits will be carried out to a high standard. In particular, this should ensure that far fewer companies do under after receiving clean or at least not very dirty audit reports often for year after year when the underlying figures could not support the opinion.
If that means doubling or tripling the work, so be it.
Whether this requires a completely new approach to auditing or not I leave the experts to determine.
However, if nothing is done to address the underlying problems in the very near future, then auditors could soon be regarded with as much contempt as shameful politicians, following the astonishing and frankly quite embarrassing events that took place in the House of Commons last week.