• Thursday, March 28, 2024
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Company audits: A time to shift the locus of blame

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The value of accounting lies in the information it conveys, which as a matter of course, should be credible but which as a matter of fact has suffered severe convulsions in history. The situation has attracted critical commentaries even from people who have nothing to do with the destiny of the accounting profession. That auditors are engaged to add credibility to the information conveyed in the financial statements of organizations is in the right direction but the outcomes of a great number of the audit engagements have been one of notoriety. In its role, the auditor stands between the financial statement preparer and the users and should as a matter, of course, have regard to the interest of both parties. However, the interest of the clients whom the auditors have greater contact with and whose interest they pursue vigorously because of the need to achieve goodwill and consequently retain the engagements, trump those of the users. This has afforded companies the opportunities to elevate issues of profits and dividends over matters of good corporate governance.

. If we seek evidence as to why things are the way they are, it would be that the interest in consultancy services which provide superior income to auditors is impairing the quality of audits; and also that the choice of auditors has ceased to be a function of competence but now of emotions and other non-edifying considerations. Under the circumstance, the appropriate action would have been to bar audit firms from providing certain consultancy services to audit clients. This had actually been canvassed and endorsed in many jurisdictions, but who bells the cat of enforcement has been the knotty issue. The big four audit firms, for instance, have been found irresponsible at one time or the other in the context of their audit engagements and they have had to ‘cough’ out billions of dollars to salvage their reputations, yet it is no twilight for ignoble audit engagements. One would have expected the big audit firms, to take heed to always be responsible in the discharge of their assignments. The public expects no less than that the auditors do more to detect fraud which of course they did not take part in committing. This is not the primary mandate of auditors even though they should be diligent enough to uncover frauds if any.

It is by law required that companies that are listed must be audited and paid by the companies whose financial statements they review. The question is, why put the auditors to so much task when most of the ‘virused’ financial statements are the products of the wisdom or lack of it of Chartered Accountants in Business (CAsB), Audit Committees and the Board of Directors? The trio ought to construct financial statements, and in fact, all financial information fairly, honestly and in compliance with relevant standards and regulations. As a matter of professional calling, CAsB should not manipulate information at their discretion or at the instruction of superior authority. It is not that the CAsB should be in disobedience of instructions of superiors but that such instructions should not violate the professional code of conduct and other legitimate regulations in force.

Whenever there is any conflict between what CAsB are expected to do and instructions from superiors, they should follow the ethical and legitimate objectives of the employer. If CAsB faces threats that cannot be eliminated in the ordinary course of communications and relationships, the option of resignation may be called to action. But how many CAsB who find themselves in serious conflicts with their employers over ethical issues whether involving financial statement or not, have chosen to resign honourably? Many, perhaps, would prefer to be neck deep with their employers in financial atrocities only to call on the auditors to play the role of ‘witch doctors’ to unravel the mystery behind the scene. When they are not able, pounds of flesh are demanded and an ocean of ‘financial’ blood spilled in ‘out of court’ settlements.

Many persons in the accounting profession are embarrassed to admit the truth to themselves that the underlying headache of the auditors and their firms are the CAsB, Audit Committees and board of directors, many of whom have taken the oath of financial murderers. I believe the CAsB have enough safeguards to ensure that financial statements emanating from their organization have sufficient merit so as to reduce the burden on the auditors in the interest of all and especially those who have an operational interest in financial reporting and other accounting information. For instance, ‘NOCLAR’ (Non-Compliance with the Laws and Regulations)provides a soft landing for the CAsB in matters of unethical practices they observe. NOCLAR requires accountants and auditors at all levels to report any act of non-compliance with laws and regulations by their employers or clients, to relevant authorities via whistle-blowing. Noncompliance, in the context of the Code, comprises acts of “omission or commission, intentional or unintentional, committed by a client or by those charged with governance, by management or by other individuals working for or under the direction of a client which are contrary to the prevailing laws or regulations.” This is a good start but who starts it!

If it is fiendish to reform audit practice, let’s reform the trio of CAsB, Audit Committees, and the Board of Directors who in the context of our discussion ‘jointly’ construct financial statements which auditors are called upon to lend credibility to. Auditors would have less trouble if everyone in the financial information production chain is diligent in the discharge of legal and imperative duties. Unless and until this is done, it is not twilight for poor audit quality engagements. The only way to hasten it is to let the locus of blame arising from audit ‘disengagements’ shift from the auditors to the doorstep of the CAsB, Audit Committees and the Board of Directors.

 

Francis Iyoha