Is auditing so difficult?by
Why do auditors, including industry leaders, fail to do the basics so often? In their latest polemic, the Imprudent Accountant argues that substantive action is urgently needed.
I would not claim to be an expert in the discipline having forsaken auditing long ago but, as far as I can recall, it was a relatively simple matter of proving that long columns of numbers added up and balanced.
Therefore, I find it difficult to understand why Big Four experts seem unable to complete projects without provoking outrage on a regular basis.
If nothing else, the likelihood is that most of these people have Oxbridge degrees, professional qualifications coming out of their ears and IQs that are almost off the scale.
Within the last couple of weeks, two out of the Big Four firms who dominant FTSE 100 audits have each been fined millions of pounds as a result of “audit flaws” that appear both inexplicable and inexcusable. Meanwhile, the accounting watchdog has taken KPMG to task over 'misleading information' in regards to its audit of Carillion.
The only explanation is that the stars of our universe are:
- Lazy; and/or
The Financial Reporting Council appears to have lost the plot. While it issues fines and makes bold statements about future conduct, nothing ever appears to change.
We need real action
The government regularly makes encouraging noises about change but also seems to step back from the brink whenever it looks as if there might be real action.
It could very easily be argued that failures by auditors have cost the public and the country billions of pounds and that is completely unacceptable.
There have been suggestions from independent bodies that at least one of the major firms should lose the right to audit. That could certainly have the desired effect, although it could come with a hidden consequence.
Quite frankly, performances from all of the major firms have been so bad for year after year that if one got banned, the others might easily follow suit, meaning that nobody was licensed to audit any major corporate, whether competent or otherwise.
Perhaps a slightly more sophisticated approach would be to attack individual partners. This could be two pronged.
First, they could face the kinds of fines that might make a difference, rather than have little more impact than a rap across the knuckles.
Secondly, they could have their practising certificates withdrawn either for a lengthy period, say five years, or permanently for really egregious examples of malpractice.
We regularly see situations in which crimes have been committed. There has to be a prospect that in some cases the CPS may take the view that accountants have conspired with the criminals. This could lead to court appearances and conceivably even imprisonment.
However, until there is a far stronger response to substandard work most auditors seem to believe that they are immune from any serious penalties and happily toddle along collecting outrageously large fees without bothering to do the job properly.
It would be great if one of the leaders in this field could publish a response, refuting the allegations in this column and explaining why their practices are industry-leading, world beating and deserve to be applauded, rather than derided. I’m not holding my breath.