Friday, 27 June 2008

auditing the auditors

won't post much today, as i have an early morning flight (yuk). an interesting development yesterday, with two auditors being censured by the disciplinary tribunal of the institute of chartered accountants. scary times for these two guys, cos the next possible step is for investors of the failed company to sue the auditors in order to recoup losses.

it may seems odd to you that auditors would be sued when in fact it was the negligence (or possibly fraud, given that they breached the trust deed) of the directors that caused the company to collapse. the auditors are often the ones sued because they have the money (especially through public liability insurance) and the directors are usually bankrupt at this stage of affairs.

however, the auditors do have a duty to carry out their audit with due care and following icanz standards. if they've failed to highlight issues that should have been brought to public attention (eg as was patently the case with the enron auditors), then they definitely deserve to be sued.

the down side to this is that i suspect audit fees are going to be going up quite a bit or else fewers firms will be prepared to do audits. already the number of accounting firms prepared or able to do audits has dropped considerably in the last 10 years. most not-for-profit organisations are struggling to find auditors, as the risks for doing that audit are just as high as a full commercial audit.

it'll be interesting to see what happens next, in terms of this particular case and any new cases, given "The institute said it was reviewing every audit file from every failed finance company". i used to do a fair few audits some years back. i'm so glad i got out of that line of work.

won't be posting for the next few days, probably will have something for you tuesday night. take care & have a great weekend.

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