Audit – is it relevant now?

“…the government is controlled and influenced by individuals who are like all individuals – they are selfish. It is naïve, if not exactly delusional, to expect them to put public interest before their own.”

An extract from Economics: The user guide by Ha-Joon Chang

Similarly auditors are individuals and first and foremost they will look after their own interest. The people via the parliament have to force them by law to look after the interest of the nation and communities their corporate clients work in.

Recent corporate failures have again brought to the forefront the question and relevance of Audits.

From the very beginning of our initiation in our accounting careers we are drilled the importance of Independence. But in our day to day training we see things far removed from the ideal world of books.

We have to ask the question what is the purpose of an audit?

Presently the purpose is to add respectability to the fiction called Annual reports made up by hard pressed accountants employed by the corporates to make the company accounts look its best.

Auditors avoid asking difficult questions because

  1. a) They lack knowledge – as competitive bidding has pushed the remuneration too low thus auditors cannot spend adequate time to understand company operations.
  2. b) Profit motive – They accept low priced assignment in the hope of selling other services to the clients. Finance directors are fully aware of this, as many of them were formerly in Auditing racket themselves, and exploit it to the fullest.

Thus we get a scenario where auditors are rubber stamping any fairy tale clients present it to them.

What is the solution?

  1. a) Audit threshold to be sufficiently high as last year done by EU to make the auditing worthwhile for the client and users of Audit reports.
  2. b) All audits allotted by a national Auditor like National Audit office in the United Kingdom or Comptroller and Auditor General Office in India.
  3. c) Audit fee fixed as per some criteria like turnover, industry etc. or some combination of it.
  4. d) Auditors only doing auditing. No other services could be provided by them. Something like a Glass Steagall Act.
  5. e) Major Corporates and companies of national importance audited by the National Auditor directly.

 

If all else fails better to abolish audit rather than continuing this falsehood.

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