After the crunch
3 Nov 08
When the dust settles, audit firms and clients must reassess working methods
In the aftermath of a serious economic downturn, auditors may become targets for disgruntled investors seeking compensation.
Deloitte managing partner, Scotland James Baird argues: “I don’t think anyone can be complacent, but to boil any one problem down to ‘It was the auditors’ when you are talking about these macro issues is only looking at part of the question. Quality has increased significantly across every audit firm and certainly it’s at the top of our agenda. It always has been but it’s now even higher profile.
“In addition to internal procedure, understanding the environment in which an audit client operates has become even more important. Business conditions are changing constantly so our approach has to be refreshed regularly.”
Baird says extreme market conditions have made even reasonable positions look untenable: “Directors who were taking decisions, and their auditors, were approaching their roles with the mind set of market conditions at that point. ‘Toxic’ or high, medium and low risk were defined based on market conditions at that point.
“When the market starts to career in another direction all those assessments have to change, and your response has to change.”
He comments: “There will be a need to reassess all these things. That is not limited to the audit profession, but the profession will need to respond appropriately.”