Auditors must heed the demand for transparency

The issue of what goes into an auditors’ report is a perennial question for
accountants. And it’s one that is never very far from controversy. The reason is
simple. Open any company’s annual report and have a look at what the auditors
have written. If there is not an emphasis of matter statement, or something
about the company’s ability to continue as a going concern, you don’t find very
much at all.

In short, what the auditors say is that they checked the accounts according
to the rules and that they have been signed off, according to the rules.

Not much of anything else. But shareholders want more. They want to know
about difficult accounting decisions that have been made. They want it disclosed
in the first instance by company executives but where they don’t they want the
auditors to spill the beans.

This, of course, all boils down to what the audit is for. Auditors argue they
are there to check the accounts, not to blow the whistle for shareholders. They
believe their influence is best used behind the scenes where the threat of
qualification is enough to force company managers back into line.

But what if they are repeat offenders and constantly require the auditors to
put them right? Surely the shareholders should know.

On the other hand, what if the auditors say one thing and the company says
another? Who do the shareholders believe? Most will come back to the core issue
­ what’s the audit for and whose interests does it serve?

If auditors should find themselves arguing for no change, or insisting that
new responsibilities should fall on company directors, they run the risk in the
current environment of being perceived as conservative and complacent.

The credit crunch has magnified the demand for more corporate transparency
and empowered shareholders and investors. Public opinion is firmly anti
corporate and both government and opposition have a taste for tougher
regulation. A new Tory government could prove more zealous than Labour in being
tough on companies.

Any stance, therefore, that could conceivably be interpreted as holding on to
a cosy arrangement that refused to increase the flow of information into the
public arena could be risky.

Auditors should be willing to engage in the problem and examine seriously
what else they could do. They should avoid being viewed as reactionary and
acknowledge that things may need to change.

There’s no doubt there are hard questions to answer. But that’s no reason not
to try.