I was having an interesting discussion with a group of students on Friday about a previous blog entry concerning “truth and fairness”.
It’s important to remember that an auditor does not make an absolute promise of accuracy.
The existence of audit risk means that a competent auditor will occasionally issue an audit opinion that proves to be inappropriate; most frequently because an unqualified opinion has been given when a qualified opinion would have been more appropriate.
We stake our reputation as a profession on perceived failures being very rare. This means that we need to make sure we’re using tools that are up to the task.
In order to state whether financial statements give a true and fair view, it is necessary to have a system of GAAP that adequately defines truth and fairness. It appears that the spectacular failure of Lehman Brothers in the USA happened as a result of window dressing financial statements, but which complied with US GAAP.
In a highly globalised market for audit services, perhaps we need to more explicitly state true and fair as true and fair (EU) and true and fair (USA)? This is attempted already within ISA 700 by stating “..true and fair view in accordance with…[insert system of GAAP]”.
However, reputational damage happens to the profession globally as a result of perceived weaknesses in one nation’s system of GAAP.
Maybe we need to amend the wording of the audit opinion to make this clearer?