On scepticism
Posted by Christie Malry on August 23, 2010 at 11:07 am
On of the first things I've picked up since getting back from my holidays is the discussion paper Auditor scepticism: Raising the bar. Issued by the UK's Auditing Practices Board on 5 August, it ponders whether a contributory factor of recent crises was a lack of scepticism in auditors. In part this draws upon reviews undertaken by the Audit Inspection Unit, who recently issued a somewhat patchy report about this year's round of inspections.
I find myself pretty underwhelmed by the APB's report. Auditors always have to face charges from their clients that they are not being "commercial", which is code for "you're being too sceptical, but I want you to go away". And auditors have had to use their judgement as to whether to stand their ground or stand down. Face down your client over a trivial technicalities that other accountants might let go, and you'll risk losing the engagement. But overlook too many requirements and you'll face the wrath of the regulators. It's a tightrope, and auditors spend years getting the judgement just about right.
Scepticism is what auditors do. They tend to mistrust things the client has prepared that can't be externally verified, and they prefer written evidence to aural evidence (okay, so this isn't rocket science, it's actually within auditing standards). The APB is trying to make out that you can be more sceptical, as if that's a good thing. But scepticism is, in my mind, a binary concept. You either are sceptical - which means having the right amount of mistrust about the world without turning totally paranoid - or you don't. It's nonsense to say that auditors could be more sceptical. What they actually mean is that they wish, with hindsight, that auditors had put their foot down while the rest of the world was insisting that growth could go on indefinitely. That is to impose our current view of the world on the past. It would be a fallacy to use that to assume that auditors were not sceptical.
Even if one accepts that you can be more or less sceptical, the APB has failed to make the case that more scepticism would be a good thing. Could they be seeking to encourage auditors to fight more battles while leading them to lose the war?
[...] returning is the idea that auditors aren't sceptical enough. Oh, puhleese. Then there are some new horrors. The Commission suggests that the creation of [...]