Stop hound­ing au­di­tors

Mail & Guardian - - Comment & Analysis -

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.

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