Stop hounding auditors
It is apparent that South Africans want blood. Whose blood? KPMG’s. The lynch mob mentality has finally reached the level of the best and brightest. It’s those in the academic and professional elite that are calling for a lynching, and I thought one was innocent until proven guilty. How naive of me.
So, as a result of what KPMG may or may not have done, the entire accounting and auditing profession has been set upon by the lynch mob baying for blood — not only KPMG’s but the audit regulator’s as well. Prior to this, South Africa was number one in the world in auditing standards; now we are number 30. This country has a tendency to destroy what is good. The audit regulator is the best in the world — no one-off incident will destroy that.
This hysteria must come to an end. It’s impacting on young accountants’ future. No more legislation is going to help. How many more corporate governance codes can we have; how many more commissions?
Blaming the auditors seems to be the right thing to do, as they apparently govern the world’s finances and ethics. This is not what auditors do. For the sake of simplicity, auditors check the books — but they only check a small sample of the books. They make judgments. The auditor cannot reduce the risk to zero that the books are okay. The proof that an auditor obtains that the books are okay can only be persuasive and is never conclusive.
The auditing standards say the following: “Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the audit standards.”
The public seems not to know or even care what these limitations are. The standards go on to say that these “inherent limitations are particularly significant in the case of misstatement resulting from fraud … the risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one resulting from error … this is because fraud may involve sophisticated and carefully organised schemes designed to conceal it, such as forgery, deliberate failure to record transactions, or intentional misrepresentations being made to the auditor.”
So, in the end the auditor faces an extremely difficult task — one that is not what society thinks it is. If society wants auditors to do what it expects, then the rules must be changed.
So, “society”, let the auditors know what you want them to do and they will do it. Just do not forget that what you expect from an auditor is not what they are required to do.
Let us not conflate this issue with ethics, as that is taken as a given and is overarching in society. Even auditors sometimes compromise their ethics, but then again so do doctors, lawyers and anyone else who sells their services for money.
Those of you criticising KPMG must never forget the old saying: “People in glass houses should not throw stones.” You know who you are.