Friday, January 17, 2020

having your accounts audited doesn't prove they're correct - so why do we keep thinking it does?

Lets get one thing clear from the start here - there are a lot of accountants who will be upset with me for writing this.
But at the same time, there are hopefully a lot of groups and businesses who'll now start to save a lot of money and stress after reading it...


There's a commonly held belief that I want to correct with this post - namely that an awful lot of people (including commissioners, grant making bodies, government officials, and the like) all think that if you have your accounts audited it proves that they're accurate.

It doesn't.


The process of auditing is simply someone giving an opinion that the way you've approached adding up your receipts and invoices (based on what you choose to reveal to them) is sound. 

An audit does not guarantee that the accounts are fully correct, or that you're a sound business proposition - and if you don't believe me, just go back and read what it says on the certificate that you pay an auditor to give you (the below extracts are from the auditors certification to the 2019 accounts for Arrandco Business Services):

  • "Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement...  Reasonable assurance...is not a guarantee that an audit...will always detect a material misstatement when it exists."

  • "We do not accept or assume responsibility to any party... to any body, for our work, for this report, or the opinions we have formed"


So if the audit process doesn't guarantee it will spot mistakes in your accounts, and if there is subsequently found to be an issue that the auditor missed, then the auditor isn't responsible for that - so what do we pay for..?


And to add to this question on the validity of the audit process, let's also remind ourselves of a few recent 'audit failures' - 

Patissie Valleirie - when asked why the auditors to this high street retail chain didn't spot the £40m fraud that spanned several years, their auditors said they don't look for fraud as part of their audit process... 

Carillion - not just one, but two firms of auditors missed the signs of a greater than £1bn hole in the accounts of this national construction firm that was a one-time darling of government commissioners, as well as ongoing signs of insolvent trading...

Kids Company - the flagship charity that suddenly seemed to run out of cash in 2015, was having serious concerns raised about apparent financial reporting and management irregularities to its Trustees as far back as 2002, yet still had accounts signed off every year...

RSM Tenon - one of the leading accountancy and audit firms found that it wasn't even getting its own accounts right after they were signed off...

the Charity Commission - last year openly said that about half of the accounts filed with it aren't being properly examined or checked by the auditors who are being paid to do so, which calls into question how far we can trust the accounts of any charity in general...



So - back to my opening question: if the process of auditing accounts doesn't guarantee that they're correct, and the auditor has no responsibility if its subsequently found that they didn't do their job properly:
(1) why do we pay for our accounts to be audited?

(2) and in light of the above quick example from across different sectors, why do we still keep asking for accounts to be audited as proof of assurance that the organisation is trading legally and is not insolvent?


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