Tag: auditor responsibility

Take one for the team?

~ C.O.R.E. Beliefs ~ Leave a comment

As a follow up to my post the other day I wanted to add a few things which I have pondered since I wrote.

One of the main reasons we are not “part of the team” is that we understand that “team” is typically a one way street.  It is an effort on behalf of a certain party to gain our cooperation in not holding them accountable.  Our independence is seen as a problem and the easiest way to overcome it is to hoist the flag of our mutual interest so that we feel uncomfortable addressing our “team mates” weaknesses.  After all, team mates cover for each other, one person’s strength is used to offset another’s weakness, right?

We learned this lesson long ago in auditor school.  Also known as the University of Adversity.  “The Team”, in these instances, only exists to protect one party.  How can I say this?

Is it really a team effort when someone in management knows a fact and fails to bring it to our attention?  When management hides facts from the auditor in the hopes we won’t find out?  “We are a team but I am under no obligation to give you what you need to do your job.”  This isn’t what team mates do.

Is it really a team effort when you say, “I know I have an obligation to take a step but frankly it isn’t important and you can just trust me.”  Team mates hold each other accountable.  I will trust you when you show you can be trusted, why should it be an obligation of “Team work”?  You create a one way street of loyalty wherein you expect me to help you be successful but you have no obligation to help me.  Hardly team spirit.

Is it a duty of a team member to turn a blind eye to sloth and laziness?  Can you imagine a ball club saying, “Yeah, that Brady.  Never shows up to practice, can’t block worth a damn but meh, he is part of the team so I guess it is ok that he is starting Tackle.”  You believe you can forgo your “A” game and it is everyone else’s responsibility to pick up the slack?

Ignore for the moment an auditor’s ethical responsibility.  Let’s say that we could be part of the team.  Don’t you think, team mate of ours, that part of your belonging to the “TEAM” demands that you give your best to the shared result?  That if our part is to help you fix your errors, your part is to identify them?  That when you know a material fact, you should tell us so we can be successful?

But that isn’t the sort of team you want.  You want the team that feels obligated to commit extra to cover for your inadequacies.  You are the lunch buddy who orders the filet mignon while everyone else orders a salad and then says that the team should split the bill evenly.  No one deserves to be part of THAT team.

So no, auditors are not part of the team.  We are not here to be popular and we are not here to sweep poor behavior under the rug.  We took our “oath of office” to protect owners from management.  We actually kinda like the job, even if it upsets certain people.

If you want me to be part of the team, pay my consulting rates.  I will walk away from auditing on behalf of your owners.  I will help you fix your obvious deficiencies in ethics and business practice.  I will even endeavor to fix those that are not so obvious.  Trust me, “team mate”, you won’t like accountability this way either, but you can at least say we are on the same “Team.”

 

Auditor Relationship

~ C.O.R.E. Beliefs ~ 1 Comment

I have written about this before but it is probably worth repeating.

In a meeting today we were told “management’s expectation”… that we are part of the team.  Somewhere there is a misunderstanding as we are not part of any team.

To be clear:

Auditors are engaged by the board of directors to independently audit management on behalf of the owners or others who contractually require an independent check on the financial reports being issued..

The key term there is independently.  To be effective, auditors must be independent of management.  So, how can an auditor remain independent while also being part of “the team?”  We really can’t and we definitely shouldn’t.

Part of the confusion is no doubt that some auditor’s have billed this as a team effort to provide information to the owners.  I have seen proposals by firms which essentially tout this approach; but it is not quite accurate to say this.  I would argue it is against auditing standards to say that you, as an independent auditor, are going to help management through their tough spots.  The independent auditor is not the clean-up position.  We are not fixers.  Finding the error, correcting the error and then expecting the entity to pay for it, when they have already paid management (and the accounting department) to get it wrong defeats the purpose of auditing the books.

Remember: Boards set policy.  Management implements policy.  Auditor’s verify that the implementation was correct.  If it isn’t, well, that is a problem.  It will obviously need to be cleaned up.  The problem is that when the auditor cleans it up, they are actually stepping into management’s role.  Acting as management impairs independence.  There are numerous ethics rulings on this matter.   The auditor is only as good as their independence by the way.  So why would we do it?

By the way, management has access to lots of consultants and CPA’s who could help them get the information right to begin with.  It isn’t like no one would help them.  But when it is done wrong and you expect the auditor to fix it, you are waiting far too long.  Months, possibly even longer than a year has gone by with the incorrect information being reported over and over.  Every report was inaccurate and somehow my pointing it out during the audit means I am not a team player?  Where is management’s responsibility in this?

Management could even have requested the board to make the auditor available to explain the expectations.  We love to talk (most of us anyway) and help you make sure it is right.  Believe it or not, we often sit around and dream about how awesome it would be to have the perfect audit – where everything balanced, management adjusted for all the issues before we brought it up, every receivable was collected and nothing ever happened after the balance sheet date.  We would be happy with just 10% of that truth be told.

Truthfully, we can’t be on your team.  We might like you, hell, you could be the greatest thing since sliced bread and we are going to be envious of your stock options and bonuses; but we can’t support you.  Our job, remember, is to make sure your stock option and bonus isn’t clouding your judgement when you decided to record a transaction.  Our responsibility is to ensure that you didn’t record only one part of the transaction to ensure you hit your target to keep your cushy job.  It isn’t that we don’t trust you but… oh who am I kidding, it is precisely that we don’t trust you.  You are management after all.

So, record the transactions.  Document compliance with policy.  Keep your financial statements in accordance with GAAP.  Or don’t.  But don’t blame the auditor when we find the work lacking.  We are doing our job of keeping “the team” honest and we make no apologies for it.