DUTIES OF AUDITORS

Taranaki Daily News, 16 October 1934, Page 5

DUTIES OF AUDITORS

NEW VIEWPOINT EXPOUNDED. THE ANALYTICAL PROCESS. In a lecture delivered at Sheffield, England, to a joint meeting of chartered accountants, bankers and secretaries, Mr. Stanley Rowland, LL.B., F.C.A., spoke strongly in favour of a reconsideration of auditing methods. “The prevailing attitude towards auditing adopted by practitioners,” he said, “has hitherto been considered with a conception of auditing as a synthetic process, which in effect takes the original material upon which bookkeeping has already worked, following the process of bookkeeping step by step, biiilding up by forming successive sub-totals of aggregated quantities into the . final summarisation which is the ultimate balance sheet and revenue account. “It is not an unfair criticism,! submit, to say that this general conception has resulted in emphasis being laid on arithmetical phenomena. It has resulted incidentally in the totally false idea that because a lad is ‘good at figures’ he is a suitable candidate for our profession, and, taken all in all, it has resulted in the present existence of a whole series of false intellectual valuations about auditors and auditing in general. The conception has coloured the legislation which governs us and it has determined the public’s estimation of our functions. We are believed to be checkers of things which have already been recorded, we are .figure fiends, and the note of our final success, when we arrive at the top of the tree, is a paragraph in the newspapers in which we are described as ‘wizards of finance.’ “It is perhaps time to remind students that there may be another conception of auditing. Over against synthesis there is the contrasted conception of analysis, and I venture to suggest that if we could get away from the worship of double entry as a fetish, and if we could so dispose our minds that the balance sheet should suggest to us not the mechanical processes by which it was produced, but rather the conception of a picture of reality, much would be different in our auditing practice. “It would be understood, for example, that although accountants find it convenient to use rows and columns of figures as symbols of facts, yet the qual-

ities they bring (or should bring) to their work are not primarily those of abstract calculators but qualities of judgment. Judgment is the ability to weigh the evident of present facts against accumulations of past experience; the ability to estimate the bias which probability should be allowed to exert on the mind in situations where certainty is not available; the ability to estimate human character; the ability to understand that the important point is not always the most obvious; and the ability to induce the emergence of the signicant from midst an otherwise bewildering mass of details.” Mr. Rowland also commented on the tendency to hold auditors. responsible for omissions or faults of directors of companies. “Perhaps lam crying for the moon,” he remarked, “but I wish to see created a financial responsibility, in civil law, of directors towards their companies. The duty of directors is to direct and I deplore the current tendency to minimise their civil responsibility. It is not right that their liabilities should be shifted to the shoulders of auditors. The duty of setting up and carrying out an internal check lies on the directors, and a failure in this direction ought to be visited on them; it is profoundly wrong that auditors in the course of a few days’ attendance should be loaded with duties which properly fall on directors who should attend every day in the year, and I urge that in respect of the matters arising in the course of mere office administration the primary responsibility falls on the directors and that auditors ought to be excused on the sole condition thai. they have drawn the attention of directors to any apparent fault in the system on which the office is conducted. “Shareholders have free choice in the appointment of directors and should secure themselves against irregularities administration by appointing technically qualified persons. If the directors mistrust their own capacity it is c~en to them specially to instruct a professional person; b"’ it seems to me. a source of error to confuse such a special appointment with the ordinary incidents of an aud’t.”