As NATO has found to its cost, raising expectations can be very dangerous. Anyone who hoped that air strikes would drive Slobodan Milosevic out of Kosovo has now learned the hard way just how determined the man really is. Accountants, and in particular auditors, have always been wary of raising similar quick-fix expectations.
Which is why the Turnbull report on corporate governance got a cautious welcome from the Auditing Practices Board. Turnbull calls for an annual board-level review of the effectiveness of a company’s internal audit systems. The proposal is part of a move to free internal auditors to look at all business processes, not just financial transactions. But the APB fears that by giving assurance about the effectiveness of internal controls, Turnbull will encourage a false expectation that the internal audit systems are infallible.
The APB’s concerns are understandable, but it is wrong to blame Turnbull for the problem. The expectation gap can probably never be closed completely but a lot can be done by educating the business community about exactly what auditors can do.
By allowing auditors to look at the whole company, the Turnbull report is another step in the process of moving accountants closer to the heart of business. And a company that reviews its internal controls each year is likely to find it easier to convince its shareholders that their money is safe in its hands.
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