Highly paid auditors spend a lot of time explaining how they are misunderstood and how the public generally misunderstands the nature of what an audit is actually about.
They might be right but if a study published in recent days is to be believed, perhaps not.
The International Forum of Independent Audit Regulators, of which the Irish Auditing and Accounting Supervisory Authority is one of 52 members, says it found serious problems in 40 per cent of audits they inspected last year.
To be fair, the 918 cases examined were not necessarily run of the mill. The focus was on those in a higher risk situation – such as companies that were involved in mergers or acquisitions and, presumably, those involved in restructurings. Still, two out of every five cases?
And the failings are pretty basic. The most frequent lapse identified was a failure by the auditors to “assess the reasonableness of assumptions”.
‘Snapshot in time’
It beggars belief how any auditor can present an accurate “snapshot in time”, as they like to put it, if they won’t even try to gauge whether they’re being sold an absolute pup. The most ill-informed of lay people might reasonably expect that.
And then there is the failure to “sufficiently test the accuracy and completeness of data or reports” presented to them by management – the second most commonly cited problem.
It raises the question of quite what a company’s shareholders are paying for.
This report has been published in the wake of the collapse in the UK of outsourcing group Carillion and scandals in other countries, such as with Dealz owner Steinhoff, in South Africa.
Sore subject
The alleged failings of auditors closer to home in high-profile cases leading up to the financial crash remains a particularly sore subject.
Auditors may maintain they are misunderstood; this report suggests they do not fully comprehend the basics of the role for which they are richly rewarded. No wonder there are recurring calls for the break-up of the Big Four’s stranglehold on the business.
