Auditors Criticise Without Value Addition

This is my 251 post and it feels good to have written so many. So I thought of dealing with a difficult and sensitive topic for auditors. The corporate world views auditors with jaundiced eyes and auditorville has a bad reputation. Scott Adams in his book “Thriving on Stupidity in the 21st Century” humorously described auditors in the following paragraph:

“Auditors get more respect and more bribes than accountants. That is because auditors are relatively more dangerous. Auditors are generally plucked from the ranks of accountants who had very bad childhood experiences. The accountants who don’t go on to become serial killers have a good chance of becoming successful auditors.”

The reputation comes from doing post mortems, writing long reports on deficiencies and criticizing the work of business teams. No one likes a critic and especially not those who do not do any value addition. So where are we going wrong?

1.  Criticizing Makes an Auditor Successful

The common perception is that more faults an auditor finds in an audit, the better is the quality of the audit. This is driven by the fact that some audit departments have a key performance indicator on number of observations. If there are no observations or weaknesses, the audit quality was not good. Let me mention an old story here.

A couple was riding a donkey to reach their village.

Two passer-by’s saw them and said – “Poor donkey, has to take the load of two humans.”

The husband heard the comment and got of the donkey. Further, two passer-bys saw them and said-“See, the wife is sitting comfortably on the donkey and the poor husband is walking on the road.” The wife got off the donkey and made her husband sit on it.

After a few kilometers  two spectators said – “See what the world is coming to, no chivalry. Man is riding the donkey and the poor woman is walking.” Now both husband and wife started walking along with the donkey.

Then another set of bystanders said – “See the idiots, both are walking and no one is riding the donkey”

The purpose of audit is to provide assurance on the process, not find faults with it. For instance, last year you conducted an audit of purchasing process and made ten observations. Will the audit of the same process be successful if you made 11 observations or nil observations? If auditee implemented previous year recommendations, then they should not re-appear. If without a change in process, you found new weaknesses, then it means the previous year audit was not done properly. Hence, criticism doesn’t make an audit a success or a failure. The quality of observations holds meaning.

2. My Way or Highway

The other presumption is that audit can be done without much of business knowledge. Just high-level understanding is required. This is really an incorrect view. I recall in my training period I was assigned an internal audit client that flew helicopters. When I was doing bank vouching, I had said to my colleague doing cash vouching  -“Wish we were auditing a car maker, at least I know the cost of a car tyre.” I was checking the appropriateness of expenses including repair and maintenance of helicopters when I hadn’t seen a helicopter from a five feet distance, let alone sit in one. Your guess is as good as mine on the quality of observations and value addition provided.

The big problem comes, when after doing an audit without business knowledge we refuse to listen to the business teams that the observations are irrelevant or incorrect. We don’t appreciate the different perspective of business teams and high-handedly push down our recommendations. Times of India mentioned a nice joke on this last Sunday.

Why did the chicken cross the road?

Plato: For the greater good.

Aristotle: To actualize its potential.

Darwin: It was the next logical step after coming down from the tree.

Neitzsche: Because if you gaze too long across the road, the road gazes back at you.

Buddha: If you ask this question, you deny your own chicken-nature.

Closing Thoughts

In the 21st century, auditors can’t hold a stick to beat the business teams all the time. The role has changed. With it the skill set and approach needs to be changed. If auditors are not able to give a better solution or process change, they should consider whether their criticism makes sense or not. Maybe, business needs to live with the control weaknesses, take the risks because the costs of plugging them are very high. The observation and recommendation should provide value addition, either in the form of assurance or improvement. Else, a lot of expenses are made to cater to auditors’ egoistical viewpoints rather than seeing business viability.

All criticism and feedback on the blog is welcome. Please share your views. A big thank you to my readers for reading my 250 posts.

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9 comments on “Auditors Criticise Without Value Addition

  1. Its time auditor’s got off their high donkeys, sorry, horses, and analyze the pet buzz words parroted so often ie ‘add value’ and ‘best practices’. The only add value that happens post-audit is that relationship with the auditee is divided, conflicts multiplied and the residual, if any in the first place, trust and respect for the auditor subtracted. And we remarkably call this ‘add value’!! How do you define and measure ‘add value’? What did we do to understand what presents value to the client before we went ‘adding’ to it? Did the client view ‘added value’ in the same manner as that the auditor perceived or reported it? If criticism is add value then a quarrelsome nag will win hand down each and every time!

    Another useless terminology bandied by our brother-in-arms is ‘benchmark to best practices’, reminds me of school days when we were asked to stand on the bench for not complying to the best practices of completing homework on time. What is best practice to one organization may not be the right practice for another and anyway what constitutes best practices in the first place. There are so many ‘best practices’ to choose from and, moreover, with the current pace of change and complexity, the best practices as well as the companies themselves go into oblivion fast (Enron, Lehmann etc). Auditors need to understand there is no substitute for common sense and applying it in the context of the organization, its size, culture, maturity, phase of life, nature of industry etc. is imperitive than the so called best practices. A simple ‘cut and paste’ solution will not work.

    Someone once defined internal auditors as those who arrive after the battle is over and bayonet the wounded. Well, it looks the perception may be true after all if all we do is post facto post mortem criticism of processes, peope and systems rather than proactive front facing assessment of system and process design. So, I think its time we changed gears and rather than go ‘back to front’, change the position of the saddle on the donkey, sorry horse, and lead from the front.

    Let not the tombstone of an auditor’s grave read:
    ” Here lies someone who followed best practices to his last breath,
    He’s still digging inside the hole to find the root cause for his death.”

  2. Great post Sonia. I like the story of the couple and the donkey. In today’s business climate, I think auditors should ask themselves whether the criticism they give in their reports is “constructive or destructive”. If you the auditor has no deep knowledge of the business he or she is auditing, its processes, value chain, industry/sector specifics etc, how can he or she add value?

  3. Interesting article Soniaji.
    Yes the KPI based on no of observation has to change so that auditors can focus on value added observation ( though it is subjective as Mitresh said) with a clear cost / benefit criteria taking into account the current and near term business context (both internal and external environment) for highly evolutionary practices and long term context for others.

  4. I think auditors as well as clients, both needs to change their mindset. In order to reap the best fruit all resources need to work together.
    I feel that audit is not only post-mortem, we have recommendations for every observation – which is always for future.
    Further, if the auditor has actually understood the business and worked together with client – the subjectivity on assessment automatically get removed and the same business understanding would give mindful conclusion to copy – paste of bench-marking activity also.
    Ya, that’s true that auditor should change the way they present observations and reduce their urge for money by reducing scope and picking only relevant areas.
    As doing everything all the time is not very efficient way.

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