What's the Future of Audit? The Discussion Begins to Get Serious

Anyone doubting the central role of accountants in human civilization need only recall that some of the oldest exemplars of proto-writing were not love poems or heroic fables, but inventory records – tallies of Sumerian grain and livestock etched into clay tablets.

From the dawn of our history, when barter was supplanted by the earliest forms of money and future payments were first promised for present performance, there has been the need to choose and apply accounting conventions – including those for financial derivatives.

But although the independent audit function emerged with the innovative Victorians – see the pioneering of William Welch Deloitte’s succinct opinion of 8 February 1850, “audited and approved,” on the half-yearly accounts of the Great Western Railway – the profession cannot escape the inexorable forces of evolution and change.

Survival threats to the large accounting networks and their provision of assurance on the financial statements of global-scale companies are profound. But public recognition of the gravity of the issues has been slight, among the user community and the mainstream media alike, and there is no credible evidence of leadership in the search for achievable solutions.

This week, blogger Caleb Newquist’s two-part series at Going Concern – “Why a Big 4 Failure is Imminent – And What It Will Mean” and “What Will the Aftermath of the Next Big 4 Failure Look Like?” – draws together my views and those of Francine McKenna of Re:The Auditors. 

Although the three of us bring differing styles and perspectives to our respective audiences, the point is not unanimity but the presence at long last of real dialog – desirably to be joined by the entire roster of interested constituencies.

Your attention is invited, and your reactions are welcome.   

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Comments

[David Albrecht]

Jim,

As you are well aware, your early arguments on this subject have profoundly affected me.

My take is because auditors do not serve the public interest, and there is great need for the public interest to be served, then we need to "fire" the auditors and hire someone who will serve the public.

Currently, my thinking is that government agencies should provide the auditing services. I could be wrong.

David Albrecht

[Jim]

Dave -- Thanks. Agreeing that fundamental re-engineering is both necessary and inevitable, I can't get my mind around audit by government agency. Think of the manifold shortcomings of the postal service, the TSA, the IRS and indeed the PCAOB itself. Regulatory compliance would be achieved, ipso facto -- but that solipsistic outcome would deliver no value at all to private users or the capital markets in general, which would find other solutions.