- Jon Hellevig
- January 20, 2017
When Audit Is Just a Meaningless Corporate Procedure
What prompted me to set up Awara Audit together with my Russian colleagues, was the experience I had retained as a representative for clients, which were subject to Big 4 audits. I came to realize that in most cases the audits had metamorphosed into meaningless corporate procedures, which did not bring any real value to the clients. I would say that these audits were more like social games where each party played out their given roles from year to year. Although, I must say, they were expensive games. With Awara Audit, what we wanted to do is offer a real quality service, which would help the clients to control their risks, make their business processes more efficient, control their taxes and, of course, really improve the quality of their financial reports.
Looking back at the successful year of 2016 and what we have achieved at Awara Audit, I remembered how it used to be. Let me therefore share a story relating to that earlier experience.
As a financial controller for Russian subsidiaries of several international corporations, my duty had been to make sure the financial statements were prepared for the corporate headquarters abroad in time for the monthly closing. Nobody was especially interested in the actual financial data, what mattered were the deadlines and the need to pass the internal and external audits. There were corporate requirement to set up internal control and risk management systems, but they tended to be quite pro-forma oriented, done by way of hiring consultants from one of the dominant audit firms to organize the thing. This involved an entirely formal process of enacting a set of procedures prescribed by one or another authoritative British association as well as perusing the CVs for the people designated as the owners of each process task. Next, the auditors from one of the other Big 4 audit firms were called in to criticize the work prescribed by the previous one. In this interplay between the bigwig auditors, my role was to look concerned and politely accept all the valuable recommendations and to collect the necessary signatures for amending the system so as to comply with the aesthetic taste of the latest set of auditors involved in the game.
For the audit of the financial statements, another team of auditors were invited. In these cases, I could not totally suppress my personality, because the financial statements were not entirely meaningless, a modicum of sense had to be injected into the proceedings. This is how it went. The auditors move in with an army of identical looking young and ambitious assistants in tow. They are given access to all the books, files, documents and databased which they pore over for weeks. Then they leave, and a few more weeks later you get the verdict in form of a list of deficiencies with a cost attached to each line item in so and so many millions. You go over that and then follows an email artillery duel. You defend your original postings, because you must, and the auditors deny the veracity of your arguments, because that’s their job. Back and forth, you go and by this process you knock off half the items from the list. In most cases, the auditor then admits that they really were not deficiencies or at least that it could not matter that much.
For the remaining issues a meeting is called and this time the partner of the audit firm arrives in person together with the lead auditor and numerous other colleagues. Each cost a fortune per hour, but that is none of your business. Usually, the audit partner is being for the first time briefed by the lead auditor about the issues at that very meeting, but he is skillful at giving the impression that he already knows the issues by heart, at least as well as a surgeon before a heart transplant. Upon hearing my side of the story, the partner graciously concedes to strike off a few of the million-dollar questions. But, here the position of the lead auditor is shaken and there must therefore be a limit on the things resolved.
After the meeting there are new rounds of emails, some of the issues are off and others back again. Finally, when the group CFO takes up the matter with the leading audit partner over a cozy lunch in London, the remaining issues are removed except for some cosmetic millions to keep everybody in good spirits.