Auditing: it's over cuz it's not smart

by admin on February 3, 2009

in General,Innovation

The last few weeks have been a high speed train ride to keep up with the firehose of material coming out of India and the US. If it’s not Deloitte it’s PwC, EY and KPMG next? Then I read this seminal piece from Umair Haque (courtesy of a Tweet from @timoreilly) and I suddenly had that feeling where you can see the car crash coming but can’t do anything to stop it.

If you’ve been in one of those kinds of accident – and I have – then you know exactly what I mean. It’s as though everything goes into slow motion and you start having irrational thoughts about things like: what might be for dinner tomorrow? This is what Haque has to say: (among other things)

Capitalism 2.0 cannot be powered by growth.1.0: that’s why the race for smart growth is inevitable. The economic pressure — the potential for value creation, in a world being ripped apart by value destruction — is simply too great.

His thesis is that all the hand wringing and fixing in the world is not going to reboot the global economy without what he terms ‘smart growth.’ He goes on to set out what that means (for which you’ll need to follow the link.) The cynics in the community will nod wisely and say – yes but…and trot out economic theory. But the real shocker for me is where he says:

Dumb growth is about incomes – are we richer today than we were yesterday? Smart growth is about people, and how much better or worse off they are – not merely how much junk an economy can churn out. Smart growth measures people’s outcomes – not just their incomes. Are people healthier, fitter, smarter, happier? Economics that measure financial numbers, we’ve learned the hard way, often fail to be meaningful, except to the quants among us. It is tangible human outcomes that are the arbiters of authentic value creation.

In our profession we’re all about numbers and wealth yet if you follow Haque’s reasoning, that doesn’t make sense. Which basically means it’s over for auditors, and, quite possibly for accounting in the sense we’ve understood it the last 130+ years.

From where I am sat in the comfort of a semi-retired existence in a wee village in Spain that must sound patronizing or bordering on the insane. And no, we’ve not had enough sun the last few months for me to be getting sunstroke. It-makes-perfect-sense.

Here’s why. Look at what my old mucker James Governor and the rest of the Redmonkians do in what Shel Israel calls Twitterville: (note to Shel – that’s a daft name but it kinda works)

While we also attract architects and other enterprise IT budget holders, we don’t rate budgets above knowledge.

Everyone else is chasing the CIO. We’re more about people reporting to him and those reporting to them. RedMonk also plays an important bridging role because unlike traditional analyst firms, we spend as much time working with web developers as enterprise types. We thus provide a different perspective on getting things done…

Our reach and approach make us an attractive partner for companies trying to build communities.  The important thing to understand about the RedMonk model is that it decouples corporate sponsorship from agenda-setting.

In other words, Redmonk is about the connections that exist beteween people. And they make a tidy income from doing that. It’s what professionals should be like and yet it’s such a rarity to see in practice. Too often partnerships exist as little more than marriages of convenience. Perhaps that will be Deloitte’s next line of defense.

It’s difficult to imagine global leaders taking Haque’s words to heart because what he’s proposing is hard. It’s way outside our collective comfort zones. Yet I’m also thinking about how this line of thinking could propel a different kind of working, a different kind of economy where what’s being measured is creative value not historical dribblings from the imperfect books and records.

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Comments on this entry are closed.

Phil Hodgen February 4, 2009 at 12:21 am

Ah, the folly of metrics in a world where a human judgment ("Is this a good outcome or a bad outcome?") is required.

Ron Baker is all over this in the timesheet arena, isn't he. Same logic probably applies in the audit arena. Ron's point — I'm a learner in this area so maybe I misunderstand it — is you don't measure project success (and employee productivity) by the hours the bill, but by the results they get, and this requires something squishy — the manager has to make a judgment call.

Audits done badly are as useless as timesheets for professionals.

I'm coming to the conclusion — following your logic — that even well-done audits are useless.

Deadpool pick for first Big 4 firm to die: PwC, 15-March-2010. Who's the bookie on this bet? :-) Yeah I know Deloitte looks dodgy these days but I'll stick with the original bet I made to @retheauditors on Twitter.

@philiphodgen

James Governor February 4, 2009 at 2:56 pm

thanks very much for the props dennis. we're working at it!

here's to the rise of post-autistic economics…. where accounting and strategy have a human face.

Francine McKenna February 4, 2009 at 5:30 pm

If PwC goes ahead and buys BearingPoint, they'll accelerate their demise. Don't forget EY… Funny how KPMG seems the most sensible by comparison these days, keeping their head down and all except for their silly PR that fed their global empire desires… http://news.prnewswire.com/DisplayReleaseContent….

LYON CASTING February 12, 2009 at 3:44 pm

good

LYON CASTING February 12, 2009 at 3:45 pm

What is Auditing ?

John P. March 22, 2009 at 12:02 am

"The important thing to understand about the RedMonk model is that it decouples corporate sponsorship from agenda-setting"

Really?

Dennis, take a look at my comment at the end of Shel's post (to which you have linked).

There is absolutely no evidence to suggest that their model decouples sponsorship and agenda setting. If you wish to offer evidence, feel free to post links and the rest of us shall review it and form our own opinions.

Evidence from researchers such as Dan Ariely (Duke Professor of Behavioral Economics and visiting professor at MIT’s Media Lab) suggests that we have a love affair with FREE things and we irrationally sacrifice quality in the process. Undoubtedly, this applies equally to free information.

So long as firms such as RedMonk continue to offer "free and unbiased" content to readers they shall maintain popularity in the end-user community whether or not the content is genuinely valuable or unbiased. Of course the content is subsidized by dozens of corporate sponsors. What percentage of their content is subsidized by donations from the end-user community? I suspect zero. Draw your own conclusions.

Dennis Howlett March 22, 2009 at 1:45 am

@john – you're better directing your comment to Redmonk than myself. They're the ones making the assertion.

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