Why do auditors seem to make such a poor job of spotting fraud? One factor, says Richard Murphy, a partner at accountant Murphy Deeks Nolan, is a massive expectation gap about what auditing can and can’t do. Despite unshakeable general assumptions to the contrary, he says, auditing (like accounting in general) is a subjective, not objective, discipline representing an opinion, not a certainty.
‘Put five accountants in a room with the raw figures,’ says Murphy, ‘and they’ll come up with five different profit figures, all legitimate. Accountants and companies understand that, but regulators, users of accounts and governments want it to be black and white.’
That’s interesting, isn’t it? Country by country reporting is therefore merely an opinion, not some fact which can be taken seriously.
Part of the problem, at least in the UK, is the structure of the industry. Auditing is the least profitable, lowest-status area of accounting, a commodity that makes little or no money for the Big Five firms.
Whereas the Murph keeps insisting that the Big4 (now, after the Andersen implosion) make out like bandits from it, doesn’t he?