I am writing this letter to disagree in the strongest terms with what Blake Oliver said in his article.
I think this type of article draws unnecessary and unsupported conclusions with statements such as:
- ”This is ironic given that the auditor’s role is to determine materiality.”
The auditor’s role is to determine whether the financial statements are free of material misstatement. Importance is determined in many ways, but usually with the audience in mind.
- ”But more importantly, this decision poses a serious question for auditors: Does this mean that all audit opinions are unimportant? ”
oh. As a qualified reviewer, I spend many hours each year working with companies to help them comply with auditing standards. The court is basing its interpretation on erroneous assertions made by the prosecutor on behalf of the plaintiff. In my experience, auditors from large corporations to sole traders do their best to adhere to professional standards and issue quality reports.
Thinking that opinions don’t even matter has gone from a two-paragraph report when I graduated from USC in 1986 to today’s multi-page report explaining the responsibilities of auditors and management, what an audit is, etc. would ignore the evolution of the auditor’s opinion leading up to the audit report. In practice, management has a responsibility to ensure that the financial statements are free of material misstatement due to error or fraud. To suggest otherwise is disingenuous and lacks an understanding of why CPAs exist in the first place.
- “As long as a company gets a ‘clean’ opinion from its auditors, everything is assumed to be OK, even if there are serious problems behind the scenes.”
What kind of jibber-jabber is this? Haven’t you even read the audit opinion? “Auditor’s Responsibility for Audit of Financial Statements” states that “Our objective is to: obtain reasonable assurance We audit the entire financial statements to determine whether there are any material misstatements due to fraud or error, and issue an audit report containing our opinion. A reasonable guarantee is a high level of guarantee, but it is not an absolute guarantee. and Therefore, there can be no assurance that an audit performed in accordance with generally accepted auditing standards will always detect material misstatements. when it exists. Because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or overrides of internal controls, the risk of not detecting material misstatements resulting from fraud is attributable to error. It will be higher than that. Misstatements are considered material if, individually or collectively, they are reasonably likely to affect the judgments that a reasonable user would make based on the financial statements. ” (emphasis added).
In other words, emptor of warning. Risk is inherent in everything. Although an audit does not guarantee that everything is safe, it is better to have an audit than not have one at all.
- “Such standardized audit regimes have no meaningful impact on the profession. Auditors check boxes to see if companies are barely complying with accounting rules. Professional judgment comes into play. There is little room, little scope to bring about change by identifying and addressing significant risks.”
Have you also studied the evolution of the auditing profession and the clarification of auditing standards? The overall focus is on assessing the risk of material misstatement and designing audits to mitigate that risk, i.e. In risk-based auditing. This has been around for more than a decade and is now more focused in SAS 145, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement.
Yes, there is practical assistance available to help auditors comply with the standards. believe me. They are much more than just “ticking a box” and far from a “standardized audit regime.” [sapping] A job that has some meaningful impact. ”
Without professional standards, corporate self-monitoring, and triennial peer reviews to improve audit quality, audit quality will decline significantly. Believe please. As a reviewer, as a member of the Texas Society of CPAs’ Peer Review Committee, and as a former member of the AICPA National Peer Review Committee’s National Peer Review Task Force, I have seen companies severely lacking in compliance with professional standards. I did. .
- “To make matters worse, auditors have to deal with endless ethical conflicts.”
The firm makes every effort to ensure its independence from its audit clients. Our independence increases the credibility of our work. There is increased emphasis on considering non-certified services performed for audit clients and whether such services compromise auditor independence. You must ensure that appropriate safety measures are taken where appropriate. If you’re not independent, you shouldn’t be doing the job.
- “Auditors are employed and paid by the companies they audit, so they are under constant pressure to issue an unqualified opinion despite any reservations. If you do, there’s no incentive to do quality work. If you do an audit, you’ll get more money.” The bare minimum. ”
Overall, the auditor profession puts pressure on auditors to do the right thing to protect the profession, the companies they work for, and the people who read the financial statements. Sure, we get paid by the clients we serve, but who else is going to pay us if not them? Obviously, there is no pass/fail for audits. If you’ve ever performed an audit where you encountered a risky situation, you’ll quickly learn the remedies auditors need to encourage client compliance. Therefore, a modified disclaimer or objection exists. These are the “hammer” that shows the client what opinion the auditor will issue if material matters are not adjusted. If the auditor determines that the financial statements are misleading or false, he or she may withdraw them at any time.
- Comments about “poor quality audit” are rated as “low value because they are the same as the customer.”
For public companies, important audit matters vary from company to company and from audit to audit. The comment “It doesn’t matter who does the audit, just that there are people who do the audit” is ridiculous. Accounting Oversight for Public Companies Board-rated companies have higher standards for public companies, and banks, regulators, and investors have more control over who their auditors are and whether they have a strong industry reputation. Please believe that there is.
- Comments about wages leading to fewer young people entering the field.
What does this have to do with what you accused above? Wages are driven by the market and have steadily increased over the past few years. Market forces of supply and demand are already having an impact and will continue to do so, increasing audit costs. When there are fewer auditors in the market, the price of auditing also increases.
If I had more time, I might write a complete rebuttal to the entire article. I wonder what purpose there is in “attracting and protecting the best and brightest” for this profession if we are not going to commit ourselves to educating and training a new generation. Auditors strive to do their best. Although there are some “bad eggs”, overall audits are valuable and serve the larger purpose of helping communicate financial information to banks, regulators, and the public.