It’s no secret that I feel that audits are almost completely ineffective when it comes to verifying the validity of financial statements. Sure, an audit checks the math and some of the obvious applications of the accounting rules. But audits don’t guard against fraud and usually don’t find fraud.
Those who want audits to do that should just keep on wishing. It’s not going to happen.But auditors, of course, have a vested interest in being relevant. They can’t actually admit that audits are nearly worthless, or they put themselves out of jobs. Auditing is a massive industry, raking in billions of dollars each year in the U.S. alone.
Following the big scandals at companies like Enron and Tyco, the auditing industry took it upon itself to develop its own “watchdog,” the Public Company Accounting Oversight Board (PCAOB). Oversight? That’s a good thing, right?
Normally, yes. In this case, it was more a matter of convincing the public that auditors were serious about actually accomplishing something. If they didn’t “self-regulate” more, then outsiders would regulate more, and very possibly put auditors out of business.
An article on CFO.com from Friday is another bit of proof that the PCAOB is near worthless, just like audits. PCAOB is telling auditors to “focus on the CFO.”
Are they serious? They’re feeling important and relevant because they’re letting auditors in on the big secret that the CFOs of companies are in charge of the numbers? The subtitle of the article says: “A new guidance by the audit oversight board shows how finance chiefs can either buttress or make a hash out of a small company’s internal controls.”
Seriously? Auditors needed to be told that the CFO has control over a company’s numbers and can fiddle with them at will?
The article goes on to say:
A sharp and experienced CFO with broad knowledge of a small company’s operation can make for a much easier and cheaper audit of the company’s internal controls over financial reporting. An unruly finance chief, however, can wreak havoc on the controls of a tiny firm.
Through pithy scenarios, a Public Company Accounting Oversight Board staff guidance issued today reveals such down-home wisdom about the crucial role of the CFO in the audit process.
Reveals? Reveals????? Sorry, but if auditors didn’t already know that CFOs exert control over the financial statements and internal controls, then the auditing profession is far worse off than even I suspected.