Auditing

The Building Societies Gazette for August last has an article on auditing, suggested by the Liberator Building Society’s failure which, being the antipodes of the view usually entertained by our contemporaries, is of Sufficient interest to reproduce. It says:—“We have no hesitation in saying at once, for the evidence as gone quite far enough to justify our view, that the auditors of the Liberator Building Society took a very éasy view of their duties, and were less than just to their own reputation as accountants and to the shareholders and members in whose interests they were appointed to act. At the same time we are bound to say that, while the evidence has disclosed the fact that in the case of this society the auditors did too little, there is a disposition on the part of the public generally, and especially on the part of Mr. Registrar Emden, to expect too much. An auditor should neither be expected to be satisfied with the mere superficial examination necessary to prove that the books balance, nor on the other hand should it be required of him that he should review the policy of the directors and be personally responsible for the good government and stability of the society whose accounts he may be called upon to inspect. Between these two extremes the auditor’s duty lies, and it is absurd to suppose that the certificate of an auditor that the accounts represent the state of affairs can or ought to convey any guarantee that the assets are, beyond all doubt, of the value set down. There has recently been a good deal of nonsense talked about the duties of an auditor. The vulgar notion appears to be that he should be a sort of censor of the directors’ proceedings, and that nothing in the way of business should be done that does not commend itself to his judgment. He must, in fact, be a man of very superior intelligence and business capacity, of conspicuous honesty and integrity, a lawyer that he may the better inspect the title deeds and see that there is no flaw in them to impair the society’s title, a valuer that he may satisfy himself that the property is worth the advances; and if there be any other virtues or capabilities that may be wanting in the Board of Directors individually and collectively it is expected that the auditor will have them all oozing out of him and ready for use at the shortest notice! Never was a more unthinking demand. Shareholders are content to pay an auditor one, two, five, or twenty guineas, according to the size of the society, but they in no case pay him for one-tenth part of the time that would be necessary to do what, when things go wrong, they think he ought to have done, nor for one-hundredth of the qualities that they vainly look to find in mortal man. What, then, are the duties of an auditor? It is not easy to define them or to limit them, and it is better that they should not be either defined or limited. Let the shareholders pay their auditors a fee that will enable them to devote as much time as may be necessary to thoroughly examine and sift the accounts, and let them appoint trustworthy men for the purpose. The auditor on his part should keep his eyes and his ears open, and should immediately report to the members anything which in his opinion is being done to their detriment. Such ‘cooking’ of the accounts as has been discovered by the Official Receiver in this case might and ought to have been detected by the auditors. The members of a society and the public at large will never be satisfied with an audit that is limited to the elementary calculation that twice two are four; but they ought not to look for too much. The directors are, when all is said, the persons in whom the members have reposed their confidence, and it is cowardly when that confidence has been betrayed to make the auditor the ‘whipping boy.’”