When things go wrong, let’s all blame the auditors, right?
Just about every time some financial catastrophe occurs (especially if wrong-doing is involved), it’s usually followed soon afterwards by a cry of “Hang the auditors!” because surely they must have been complicit in malfeasance, or at least incompetent. While, very rarely, individual auditors are complicit or incompetent, as a general rule the vast majority are not. The recent Madoff fraud revelations provoked typical demands for “better supervision of auditors”, whatever that means. After an opinion piece in that vein by accounting commentator Richard Murphy, fellow accountant and blogger “Dennis the Peasant” wrote a vitriolic response. While DTP isn’t one of my usual reads, in between the invective he does provide a useful lesson for shareholders, regulators and boards on what auditors actually do and don’t do. It’s worth a read.
Disclosure: Although not an accountant, I was a partner in Ernst & Young, in the days when it had a strategy consulting and performance improvement practice. EY took professional standards extremely seriously. They even made me join the Institute of Chartered Accountants, for which I received much ribbing from my non-CA mates.
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