Granted the discovery of accounting problems at SFI may not rank on quite the same scale, but the problems at such a high profile company – it runs the Slug and Lettuce chain of pubs – will hit investor confidence and do nothing to aid the recovery of the reputation of the City.
And if you believe some commentators, the news of the #20m hole in the companies accounts lead to the demise of a publicly listed company that employs thousands.
Either way tough questions will again be asked of an already embattled industry. What the auditing profession will have to ensure is are the right questions being raised and how far are the auditors to blame on this one.
Once again we are back to the expectation gap between what auditors say they can realistically achieve and what the public, and particularly investors, expect of them.
Just last week the ICAEW published a best practice guide stressing the limits of audit in detecting financial fraud as exposed in recent US scandals.
It says: ‘The purpose of the audit is to express an opinion with reasonable assurance that the financial statements give a true and fair view; it is not to provide a certificate or a legal warranty that they are completely without error.’
SFI has now met with its auditor Horwath Clark Whitehill to discuss the issues. Horwath will undoubtedly be using this defence against any potential allegations levelled at its audit work for SFI.
The ICAEW’s tome must not be allowed to gather dust: its content must be read and communicated to client and auditors alike if we are ever to narrow the expectations gap let alone close it.