The auditing profession has come out of the credit crunch relatively unscathed, with few observers blaming firms for failing to spot the problems that got banks into difficulty, according to Paul Boyle, chief executive of Britain’s Financial Reporting Council. “So far, at least, auditing has had a good crisis,” Boyle said in a speech on early lessons to learn from the financial turmoil.
“I have heard some criticism of the work of auditors, but they have been a mix of the ‘too lax’ and ‘too strict’ varieties of criticism,” Boyle said. He called for critics of auditors to be more precise about their complaints.
He gave the example of critics who say auditors should have intervened earlier to encourage their financial services clients to constrain the proliferation of exotic financial instruments. Such complaints, he said, “seem to me to be based on a fundamental misunderstanding of the relative roles of auditing on the one hand, and on the other hand corporate governance and financial services supervision.”
Boyle added that auditors are now coming under much greater scrutiny than in the past. “In our role as independent regulators of the profession, we are requiring auditors to demonstrate to a much greater extent that the judgments made in the course of their work are defensible,” he said.
He concluded with a question to ponder in the months ahead: “Were all those involved in accounting for or designing internal controls for these innovative products, services, and structures able to keep up with the pace of change? And if, understandably, on occasions they were not able to do so, did they have the courage to speak up about the consequential risks?” He did not give an answer.
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