The saga of e-district should serve as a warning to auditors. There was a time when they could visit a warehouse and ‘kick the tyres’, literally making sure that what the company claimed it had produced really existed.
There are many seasoned auditors who as juniors were sent to far flung outposts to make sure all was in order.
But life is not so simple now. The auditor can no longer touch and feel what is produced – many new company valuations and productivity targets are based in part on website hits.
There might not be a statutory obligation for the auditor to report on such measurements, but surely for its own reputation the profession should check such claims.
Several large firms have called for the wider recognition of standard internet metrics – this deserves everyone’s support if more fingers are not to be burnt after the dotcom gold rush.
E-district’s chief executive was shown the door after it was discovered page impressions, users and revenues had been overstated for a period that could have stretched back to before flotation.
Investors who bought into the company would certainly have been comforted by reputation of the company’s advisers, perhaps unaware of the limitations of the audit.
Investing in such companies is risky, but there is also a risk for auditors if they cannot measure and account for the new business world.
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