Responsibility of auditors: Threats and challenges

Firstly it is up to the government to frame adequate laws and regulations to strengthen the nation’s roots to wipe out corruption while accountants or auditors should strive to keep checks and balances in every entity ensuring transparency

The profession of auditing has been an enabler to better transparency and accountability in regulated and deregulated business environments. There are approximately 46 primary professional bodies all over the world that provide the framework for self regulation of this profession permitted by statute. All these bodies are affiliated to the International Federation of Accountants (IFAC) while a few do not belong to IFAC as they operate more like specialists’ bodies helping the work of auditors and accountants such as in the field of taxation, forensic auditing and system auditing. The members certified from these institutions are the torch bearers and are bound to uphold the integrity and adhere to the ethical requirements while continuously persevering to maintain the excellence and pride of these institutions.

Every country requires institutions like these. It cannot be the sole responsibility of the Government to keep checks and balances, monitor the business transactions, formulate policies and programs for the effective administration and management and work on the technical aspects of each and every business unit. Certainly Public Accounts Committee (PAC) under the Ministry of Finance is present to oversee the accounts of the Government owned companies. But in certain countries like India and Nepal we notice the Government issuing invitations to the private bodies to conduct audit of these companies on behalf of them. The Government has provided a playground for private audit firms to play a crucial role due to the limitations on their part. This interlinked with other factors has made this profession a challenging one.

Auditors provide an opinion on the veracity of the financial statements. In principle their opinion should be an unbiased one which is free from any circumstantial interference or vested interest of the management. However, in modern times the auditor’s independence is sometimes breached which compels him to tow away from the above factors.

Self review threat occurs when the auditor has also prepared some of the accounting of the fund. Therefore, there should be two distinct professionals, one who is involved in accounting and the other in audit. However this type of practice is impossible in a sole practitioner.

Self interest threat  occurs when the firm has only one client or the client is the one from whom significant revenue is generated. In both the cases it is unlikely that independence can be seen which may restrain the auditor from issuing a qualified one. There may be instances where the firm being the statutory auditor is providing advice on internal management of the client. This poses a serious condition on the efficacy of the clients’ internal audit staff. These threats are seen to have many sources and thereby they fragment in a multi dimensional manner ultimately posing risks to the sustainability of this profession.

However in the recent times we have seen some improvements emerging and evolving out of technological developments. This profession seems to reinvent itself by using artificial intelligence and data analysis. In this century there has to be a smart way for auditors to find anomalies in the data provided to them and use human judgments to assess the outcomes of the analyses and tests performed.

Corruption emerges where there is weak architecture in the government’s policies and programs. It spreads in nations where laws are not in parallel to the best practices in the world. Therefore, firstly it is up to the government to frame adequate laws and regulations to strengthen the nation’s roots to wipe out corruption while accountants or auditors should strive to keep checks and balances in every entity while underpinning transparency, accountability and rule of law. Loopholes can be easily found by people who are willing to do so but it is upon the auditors to circumvent their hard efforts to boost the economic growth of the nation as a whole. Therefore professional bodies should work alongside the government, regulators, law enforcement, and international bodies and support the nation to combat bribery, tax evasion, money laundering and the financing of international terrorism.

Auditing needs to be much smarter than it is now. This is only possible with the adoption of technologies that will allow auditors to provide better insights into critical business information and risks. This will in turn build trust and confidence in the capital markets and help drive sustainable growth. The audit profession should also help to build capacity at a country level through engagement with governments that ensures public accounting to be more transparent and ensure proper financial management for the economic growth of the nation. The 21st century auditor has still a lot to learn and deliver. In many cases vague, ambiguous, abstract language should be avoided in disclosure statements and good governance reporting should be encouraged. The profession of audit requires new talent, embarking upon a journey beyond mechanically applying new accounting rules with new assessments, checks and judgments inevitably creating a need for new skills training, which is not only critical but also a prime tool that large firms are using to hire better talent. Costs may rise in bringing up some radical change but it is the need of the hour to secure success.