AAT Comment: The death of audit

AAT_Team

Audit is broken, according to academics, politicians and investors. Is it time to bin it?

The Satyam Computer Services scandal involved one of the biggest frauds in India’s history.

The fraud, revealed in 2009, was as serious as it was partly because of major audit failures on the part of Price Waterhouse, PwC’s Indian audit unit. As a result of those failures, the unit has recently been banned from auditing in India for two years.

Full article.

reader

Yes, bin the current format.

The current format is crazy.

How can the auditor be objective when they are being paid by the client!

The auditors willing to bend the rules will end up successful with business owners looking for a stress free/painless/cheap audit.

Or maybe change the rules, i.e. an auditor cannot do two audits in a row, i.e. next year's audit has to be done by another auditor. That way the auditor will get it right. Otherwise, their mistakes will get picked up by next year's auditor who can lodge an official complaint with the ACCA/ICAEW/FCA, etc.

KoopaCooper

"Who audits the auditors?"

Or perhaps when an audit is required, two mutually independent audits must be carried out at the same time - and their findings should (of course) agree 100%?

reader

KoopaCooper said:

"Who audits the auditors?"

Or perhaps when an audit is required, two mutually independent audits must be carried out at the same time - and their findings should (of course) agree 100%?

Two auditors will never be able to produce the same audited accounts, in the same way 2 accountants won't produce the same unaudited accounts, e.g. different depreciation charges, different capital asset policies, different use of home charges, different views on IR35, different views on whether or not the wife's (or whoever) salary's is market rate, different expense claims for subsistence (benchmark vs actual), different ways for accounting for dividends (loan write offs, versus bank payments versus interim dividends versus final dividends), charging interest on overdrawn loan accounts, different views on what is allowable, etc.

Consequently there would be too much disagreement and the costs involved in having a double audit would be too expensive.

I just think the maximum audit term should be 1 year, and that way there are no hiding places and there should be a requirement for the current auditor to report to the regulator (ACCA ICAEW FCA) if the previous auditor has messed up.

mskaat

> @reader said:
> "Who audits the auditors?"
>
> Or perhaps when an audit is required, two mutually independent audits must be carried out at the same time - and their findings should (of course) agree 100%?
>
> Two auditors will never be able to produce the same audited accounts, in the same way 2 accountants won't produce the same unaudited accounts, e.g. different depreciation charges, different capital asset policies, different use of home charges, different views on IR35, different views on whether or not the wife's (or whoever) salary's is market rate, different expense claims for subsistence (benchmark vs actual), different ways for accounting for dividends (loan write offs, versus bank payments versus interim dividends versus final dividends), charging interest on overdrawn loan accounts, different views on what is allowable, etc.
>
> Consequently there would be too much disagreement and the costs involved in having a double audit would be too expensive.
>
> I just think the maximum audit term should be 1 year, and that way there are no hiding places and there should be a requirement for the current auditor to report to the regulator (ACCA ICAEW FCA) if the previous auditor has messed up.

Probably the appointment and remuneration process should change to be handled by an independent body. Most likely a government regulatory body.

reader

mskaat said:

> @reader said:

> "Who audits the auditors?"

>

> Or perhaps when an audit is required, two mutually independent audits must be carried out at the same time - and their findings should (of course) agree 100%?

>

> Two auditors will never be able to produce the same audited accounts, in the same way 2 accountants won't produce the same unaudited accounts, e.g. different depreciation charges, different capital asset policies, different use of home charges, different views on IR35, different views on whether or not the wife's (or whoever) salary's is market rate, different expense claims for subsistence (benchmark vs actual), different ways for accounting for dividends (loan write offs, versus bank payments versus interim dividends versus final dividends), charging interest on overdrawn loan accounts, different views on what is allowable, etc.

>

> Consequently there would be too much disagreement and the costs involved in having a double audit would be too expensive.

>

> I just think the maximum audit term should be 1 year, and that way there are no hiding places and there should be a requirement for the current auditor to report to the regulator (ACCA ICAEW FCA) if the previous auditor has messed up.



Probably the appointment and remuneration process should change to be handled by an independent body. Most likely a government regulatory body.

How would the government be able to allocate/appoint different auditors to different businesses?

Every auditor offers a different service (including systems, controls, compliance, business advice, drones, etc). Sum auditors have thousands of employees, while others have none. How could the government figure out an appointment process that is fair and equitable for both auditor and client?

I don't think the appointment process of an auditor is the problem. I believe it is the quality of them and the fact that their objectivity suffers because they want to keep their clients happy.

The government themselves can't do the audit, how could they afford to pay when there isn't even enough money for the nhs, pensions, etc.

They should just reduce the appointment length to 1 year, so other auditors take over next year and spot the errors of the previous auditor. Also, the auditor won't worry about losing the client because they were going to lose the client anyway if the audit term is only 1 year.

mskaat

reader said:

mskaat said:

> @reader said:

> "Who audits the auditors?"

>

> Or perhaps when an audit is required, two mutually independent audits must be carried out at the same time - and their findings should (of course) agree 100%?

>

> Two auditors will never be able to produce the same audited accounts, in the same way 2 accountants won't produce the same unaudited accounts, e.g. different depreciation charges, different capital asset policies, different use of home charges, different views on IR35, different views on whether or not the wife's (or whoever) salary's is market rate, different expense claims for subsistence (benchmark vs actual), different ways for accounting for dividends (loan write offs, versus bank payments versus interim dividends versus final dividends), charging interest on overdrawn loan accounts, different views on what is allowable, etc.

>

> Consequently there would be too much disagreement and the costs involved in having a double audit would be too expensive.

>

> I just think the maximum audit term should be 1 year, and that way there are no hiding places and there should be a requirement for the current auditor to report to the regulator (ACCA ICAEW FCA) if the previous auditor has messed up.



Probably the appointment and remuneration process should change to be handled by an independent body. Most likely a government regulatory body.

How would the government be able to allocate/appoint different auditors to different businesses?

Every auditor offers a different service (including systems, controls, compliance, business advice, drones, etc). Sum auditors have thousands of employees, while others have none. How could the government figure out an appointment process that is fair and equitable for both auditor and client?

I don't think the appointment process of an auditor is the problem. I believe it is the quality of them and the fact that their objectivity suffers because they want to keep their clients happy.

The government themselves can't do the audit, how could they afford to pay when there isn't even enough money for the nhs, pensions, etc.

They should just reduce the appointment length to 1 year, so other auditors take over next year and spot the errors of the previous auditor. Also, the auditor won't worry about losing the client because they were going to lose the client anyway if the audit term is only 1 year.

Technology has outpaced the self-regulated profession and It will require a seismic change implemented over 5 or 10 years to catch up.