We Are All Potential Auditors Indeed!

Yes, we are… Yes, indeed!

It’s not only the investors, debtors, government agencies or the regulatory parties, but it’s the entire society who would like to know: “What is really going on with the business?”

One way or another, we all question the performance of certain companies, since it influences our decisions, directly and indirectly. There are a ton of scenarios where this occurs: Either as being the current or prospective employees; an individual who cares about the environment, a governmental authority which regulates the operations; a party who supplies or is a customer to the operations; an existing or potential shareholder of the business; being the debtor etc. The list surely goes on!

“There is nothing either good or bad, but thinking makes it so…” says William Shakespeare…
Certainly, it all begins with raising up the initial questions, put neatly into the 5 interrogative words:
“Who is affected by these operations?”
“What is the value of this business?”
“When is there an on-going concern of the business?”
“Where do the operations show its compliance with the business’s ethics and regulations?
“Why would we still want to keep our interest in this business going-forward”

This is where auditing comes into hand. Simply put, searching for the answers and constituting an opinion on the financial position and the performance of a business activity is what the audit activity stands for. Of course it is not only the numbers that is of an auditor’s concern. There is much more to it. While setting the stage, a good understanding of the actual business strategy is just as important. Auditors need to assess the external and internal environment, know about the plans and budgets, identify and address risks (while knowing how management formulates risk tolerances and residual risks) and be capable of understanding if the operational functions work in an harmony or not… All of these concerns are part of the audit activity in order to follow a risk-based approach while constituting an audit opinion. The life of an auditor is not just looking at numbers on a piece of paper, it is about actively thinking about the situation and analysing it.

We are all the potential auditors because we all have questions and we all would like to find answers to meet our concerns. Having this, the next question is “Do we really have to address these questions by ourselves or would it be better to render an audit service?”
As Thomas Hobbes told “In the state of nature, profit is the measure of right”

It is not a surprise that the fundamental consideration on rendering an audit service is highly linked with the “cost-benefit” equilibrium set by the stakeholders to address for their interests in the outcome. In plain English, is spending my money on auditors going to be worth it?

We all have questions and we all want good answers. It can be simplified that this is indeed the point where the need for rendering an audit and assurance proficiency commences. It is neither possible for all parties to check the performance individually, nor is feasible to get 100% assurance on the activities for all concerned. Moreover, it is also impossible to manage the individual biases of all the parties, nor allow them to perform their assurance activities individually (without any applicable form or a standard).

The audit proficiency serves for pursuing a reasonable assurance on the financial position and the financial performance of a company by applying generally accepted audit principles. The independence and professional due care are the core pillars of audit activity through which a more convenient and structured approach is guaranteed on addressing the concerns about the operations.

Therefore; not only is it being practical and cheaper, but it also ensures common (generally accepted) norms while applying the audit function. These are the key benefits to render the audit services. Last but not the least… As being a potential auditor, it would also be better for us to think about the potential challenges for assurance services nowadays and how to overcome them.

Since the assurance services have an invaluable contribution on the society by providing a reliable comfort on the existing information, covering the rapid and perpetual changes in the way of doing business is a key issue. In other words, aligning with the improvements in information technology and disposing the threats on the quality of the audit activities, independence of the auditors and the business ethics should be ensured.

How these obstacles can be overcome is also essential for the wealth of the society at large. We all demand information that is available, maintained, useful and of high quality. Having comfort and assurance on the available information is what we ask for. This can be provided by auditors.

There is no doubt that both the audit proficiency and the regulatory bodies should also prioritise these issues and address these concerns properly. Although there are extensive sources of rules and regulations on independence and ethics, the audit procedures may also be re-designed to catch up with existing level of the improvements in businesses. Rather than being reactive, the improvements in the audit proficiency should indeed be inline with the existing environment.

As told by a famous writer: “Life is divided into three terms – that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future…”