Audit expectations
21 Jan 09
Since when were auditors also expected to be fortune tellers?
A week today, the influential Treasury Select Committee Inquiry will examine the role of the auditor in the banking crisis. ICAS has submitted evidence for the committee to consider.
In the context of the financial problems our banks are experiencing, one would imagine that the MPs hearing evidence will be interested in whether or not auditors could have done more to flag up difficulties.
This is a perfectly reasonable line to pursue. To my mind, it also logically leads to one of the key issues surrounding the audit – the gap in expectation between what an audit is supposed to do and what people think it does or may want it to do.
An audit has never been a tool for predicting the future. In terms of our banks, auditors couldn’t have predicted the liquidity issues which resulted in government bail-outs, the subsequent “big freeze” in the wholesale funding markets or the Financial Services Authority’s imposition of additional capital requirements.
Not only that, they shouldn’t have been expected to.