On the Social and Political Role of Audit

Audit plays an important symbolic role in the economy and society. May sound odd, but one could speak of the social and political role of the auditing profession.

We are all used to the state having the central controlling function, meant to be on behalf of the society. But the more the society liberates itself from the state’s meddlesome “services”, the better. The state is per definition a bad and inefficient service provider, not only historically and in terms of its “corporate culture”, but also simply because of its scale: a small local enterprise will certainly be better able to concentrate on the demands of the local “small” ordinary people than a big universalized machine trying to fit all the interests of all the multiple different people at the same time. The same with the state: it has traditionally has the goal to be “everything for everyone”, grant welfare to all the people. But as a result it just wastes time, money and human resources; or is more often just an instrument of influence in the hands of certain immoral persons.

So, audit is exactly the instrument and hopefully only one of the first signs of how a society can take over the functions of the state. As far as not only the shareholders, but also the general public too, are users of the audited financial statements, here we see how a company builds its relations with the society. I don’t like the word “public control” as no one should control anything that is not his private property – and a private company is certainly anything but a “private property” of the public. But what we see here is exactly how a company communicates with the society and the society “has its eye” on the company without a slight participation of the archaic bureaucratic state in the process.

Of course, the bureaucrats are trying to put their fingers into auditing and establish their control there. Remember the stupid situation with the Russian authorities getting PwC to court for the audit of YUKOS.

At the end of the day, the auditing firm’s only real asset that allows it to do business is reputation. The auditor simply states that after having done some procedures it has the impression of the financial statements to be true and fair. Not more and not less then that, and whether to rely on the auditor’s statement or not – is up to the individual user of the financial statements. Of course one will be more likely to rely on them is the auditor is Deloitte or E&Y than if the statement comes from some unknown little audit company. But even if having trusted a brand – it’s always, always the user’s own risk and decision.

That’s how important audit is as a symbol of civil society’s self-regulation replacing the state. In some way it makes me proud to have worked in this noble profession, no matter how hard it was at some times and how much the work process itself has to be improved and will be improved as technology advances.