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Feed the mind

The true and fair view of auditors

25/9/2012

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It is an established rule that the auditors are to play a vigilant and objective role in ensuring that the shareholders' interests are well protected and that the management of the company have acted within reason. It is the shareholders who primarily depend on the good faith and efficiency of the company's auditor to ensure that company's actions in the day-to-day operations are verified.

Sound good, right?  It seems like as long as the financial statements are audited without qualification (technically means the auditor is of the opinion that it presents a true and fair view), the company is considered financially healthy.  There is no fraud, you can invest in the company and so on.

No, not so fast.  There is something known as the "audit expectation gap".  In reality, the auditors may have this in mind:

“Haven't you heard the old argument that auditors are watchdogs, not bloodhounds? Don't depend on us to sniff out fraud with a once-a-year visit. If the management is smart and determined enough, we'll never detect its wrongdoing in the course of a normal audit.”

“We've been auditing this company for many years and we know well the guys running the show. If we've never found anything wrong all this while and the management hasn't changed, why would we be suspicious?”

“Let's get real here. The board of directors are only willing to pay us X amount of audit fees. Sure, we can expand the scope of the audit work, but who'll pay for the extra man hours required to perform the additional work?”

“Hey, the audit market is very competitive. Companies have been known to switch auditors after their accounts had been slapped with modified audit opinions or after disputes over accounting treatment. “

“Spare a thought for us auditors. Costs are rising and employee retention is getting more challenging. The accounting rules and business conditions are increasingly complex. On top of that, the regulators are more watchful. And you expect us to keep doing better and better?”   You can read more at the Star newspaper.

Now, that is the true and fair view ...
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