There are a lot of reasons as to why an audit process can go wrong. From the audit procedures that were carried out on Carillion which offers health services to over a million Virginians in America. It is essential to identify with the fact that a failed auditing process can be costly. Despite the fact that auditing brings praise to the company upon successful completion, there are a few people that are left with the entire burden in case of failure. The causes for failure in Carillion’s case was due to a combination of factors such as human error, compliance with the audit process, HACCP failure, lack of supplier control, and lack of documentation as well as the proper organisation.
It doesn’t matter the industry that you belong, but one thing is for sure, human error is bound to happen. According to auditing experts and FRC’s enforcement division, the failure was attributable to human mistakes. That said, the critical goal of the quality assurance manager concerning this issue would be to ensure that all employees are appropriately trained and can fully understand the auditing process to reduce human error as much as possible. When the employees feel that they are comfortable with the whys of specific organisational processes, it becomes more comfortable for the company to progress. Moreover, internal audits ensure that the management familiarize with whatever the outcomes bring.
Another factor that may have deterred the auditing process at Carillion may have had to do with the compliance versus business goals. In the organisation, there was a high probability that there was a conflict of interest between the quality assurance manager’s goals and the need for the business to continue with its operations as usual. The failure in the case of Carillion may have resulted due to some activities including customer attendance coinciding with the auditing process. This means that the auditors had limited access to vital information and therefore hindered their efforts. To mitigate this issue, compliance should come before anything else because failing to meet this may lead to a high cost which is more of a loss that would have been caused by delays in product delivery.
Onwards, failure can be tied to the serious distortion of financial statements which does not reflect in the audit report. This means merely that serious errors have been made either knowingly or unknowingly by the auditor. This might have occurred in the case of Carillion where the auditors might have used the wrong GAAP or GAAS during entries. It can either be intentional or by mistake. Alternatively, the auditor may have knowingly interfered with the entries to succumb to pressure or allow for a bribe. Moreover, documents may have been distorted following undue influence by the client who might have had a personal or business relationship with the auditor. In such cases, the ythe auditor may bend the rules and allow for mischievous acts while protecting their interests.
As it is the duty of auditors to detect and correct any possible fraud, auditors are advised to strictly adhere to guidelines offered by GAAS and GAAP as this can lead to audit success despite there being any form of alterations in the books of accounts. There are a lot of misconceptions with regards to what an auditor can achieve and what he cannot. That said, the auditor’s responsibilities with regards to fraud and the going concern concept of the business leaves a large “expectation gap” between what the auditors can do and what users of financial statements expect. There is bound to be failure whenever an auditor does not comply with the provisions of ISAs. For example, the auditor at the firm may have decided to give an unmodified opinion on his own accord meaning that he was negligent in his work. Last but not least, audit failure may have been castigated by the incompetence of the auditor from the very beginning. For example, the auditor may have lacked the necessary knowledge required to sufficiently understand the risks involved in measuring of fair values and reporting of earnings.
Following the failure of an audit task, many issues are bound to come up including the responsibilities of the auditor in matters to do with fraud and fraud detection. Also, auditor’s independence is questioned as the rigidity of the accounting, and auditing standards remain in doubt. However, to make the auditing processes successful in every attempt, the application of International Accounting and Auditing Standards should be encouraged on a global basis to undermine the rules-based approach that ends in audit failure most of the times. Example of such a standard is the ACCA which supports a “think global: act locally” kind of thinking. Also, undertaking a review of the current regimes that monitor compliance such as mandatory peer reviews of the US and the Joint Monitoring Unit for the UK as well as the enforcement mechanisms that support theme can lead to increased chances of auditing success. Concerning auditor’s independence, a limit should be set on the time when the auditors are cleared to hold appointments. Also, an auditing firm shouldn’t carry out an audit of a client where a senior auditor has worked before to increase success chances.
From the precedent, it is clear that audit failure is directly or indirectly linked to corporate failures. That said, despite how much effective an auditor’s response is, company failure is guaranteed where there is a corporate failure.
References
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