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?


Thursday, January 2, 2020

If you're not prepared to 'burn out', maybe you shouldn't be a social entrepreneur...

With the start of a new decade, resolutions abound - and they're usually to do with trying to be healthier and taking greater care of ourselves. Indeed, there seems to be a growing trend in many Facebook and LinkedIN groups that I'm part of to encourage more open and honest conversations about our mental health and well-being.

And this doesn't seem to be a passing fad - the imperative to do so seems to be increasingly supported by evidences and research, highlighting the cost of 'burn out', particularly for/to social entrepreneurs... https://uk.reuters.com/article/entrepreneurs-social-mentalhealth/doing-good-found-to-take-its-toll-as-more-social-entrepreneurs-report-burnout-idUKL5N2715KT

But I can't help but want to 'poke this with a stick' a little bit, and suggest that actually, burning out may be exactly what a social entrepreneur needs to do, if they're to fully achieve their vision.

You see, to my mind, "social entrepreneurship" isn't about creating the next big social enterprise that will magically create hundreds of jobs for people who otherwise wouldn't be able to work, or managing to somehow stop all plastic pollution by itself (as they're often envisaged and encouraged to be by policy makers and similar). 
I have an idea that a social entrepreneur's biggest impact is actually more through how they influence others, and contribute to changes in others' practices and understanding more widely - and in doing so, can have a far greater reach and generate far more change than a single venture could ever hope to.

And in that regard, they're a bit like artists - many of whom seek to re-imagine the world as it is, or could be; to offer us a critical and fresh perspective that gives us pause to reexamine what we think we know and understand; and in doing so, become a fuller and more complete person.

And just like social entrepreneurs, artists struggle too - with many never seeming to manage to achieve their 'break through moment'. But sometimes, one does, and in doing so, creates a piece of art, the legacy of which completely changes the way everyone around the world who sees it, is challenged to revisit their assumptions and prejudices about a subject matter.
One famous example of this, is Edward Munch's "the Scream"  

This painting that has subsequently inspired so much other media and cultures, has also enabled us to have more open conversations about pain and well-being, and even allows us to communicate with future generations who are likely to loose the language we use today. It has become one of the most iconic images in the art world ever.
As such, it's ongoing legacy surely symbolises what social entrepreneurs strive for themselves.
But we rarely talk about what it cost Munch to create: a crippling anxiety attack, likely brought on from being burnt out...


So, my question for all would-be social entrepreneurs is this: what price would you be willing to pay in order to create a legacy that will touch people's lives around the planet for generations to come...?