Loving the audit
While there is still plenty more to discover re: Satyam there is at least one good thing to come out of it. From coverage I am seeing in the mainstream, the crusty and sometimes arcane world of audit is getting long needed attention. I know it’s good sport to put accountants to the sword, a tradition that Monty Python took to extraordinary heights. This time though it is a lot more serious and in the Reuters piece to which I linked, you can see where the minds of the good and the great are going on issues like ‘true and fair’ when they say:
Even if a company has little debt and its profit held up in 2008, auditors must agree it can tap enough credit in the next 12 months to pay its day-to-day bills like salaries and repay debt.
That won’t be easy in the worst credit crunch in decades.
But the fundamentals of what audit means and why anyone should care are starting to take on greater importance for people who would otherwsie view the topic as exciting as watching paint dry.
Some of my colleagues stopped taking notice of the audit certificate years ago. They figured there was so much fabrication in reported numbers that it made better sense to use market intelligence, analyst meetings and deep probing of their own. I understand the reasoning and have some sympathy with that view, especially given the way the profession has shifted in the last 20 some years to one that is more sales oriented and less to do with public service. Prem Sikka goes further and argues this is a failure in democracy. His point is well made, even when you strip the political connotations. But then the industry does itself few favours. In the same Reuters piece:
“It’s the responsibility of management to assess whether or not a going concern basis is appropriate and the current economic climate … makes the directors’ task that much more complex,” said Jeremy Jennings, European regulatory and public policy leader at Ernst & Young.
That may be so but ‘true and fair’ lies at the heart of all that auditors do. If that can be abrogated then audit really is meaningless.
I see the current financial situation, the Satyam scandal and Pricewaterhouse’ role as a confluence of events that allow for fresh thinking rather than a rework of the old. Our ‘old’ rules served us well in a simpler world but they no longer carry the punch they once did. I wonder if those who sit as professional guardians have truly grasped what that means? If they have, what might be an appopriate response? Should we go as far as ‘rip and replace?’ I often hear that is the unthinkable. Well – sometimes brutal and invasive surgery is the only option – especially for cancer patients.
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