Final Word

Who audit the auditors?


The news about how the international auditing firm KPMG allegedly got sucked into fraudulent action in South Africa’s state capture drama, raised some very important questions.

Since the role – now admitted by them – by KPMG in the attack on the South African Revenue Service became known outside normal auditing procedures and might have stayed hidden if ‘outside parties’ did not get involved, exposed a fundamental question: Who audit the auditors?

It has become a critical question since auditing firms themselves have become, it would seem, huge international businesses in own right. And, so did the question: Is auditing still what it is supposed to mean?

For the purpose of this column we first set attempted an audit on the word audit itself to ascertain if it still means what it did from its outset.

As it turns out, like happened through the ages with so many words with their roots in Latin, some corruption started quite early, if not from the outset.

Audit, arrived in Mddle English around the middle of the 15th century from the Latin word auditus, the act of ‘hearing,’ from audire, meaning ‘to hear.’ It also gave us the word audience, as in the theatre or political meeting.

The concept, and practice of what we know today as auditing in the sense of an official examination and verification of accounts and records, dates from the time of ancient Egyptians, Greeks and Romans, where the practice of checking the accounts of public institutions existed.

Checking clerks were appointed by authorities to locate frauds as well as to find out whether the receipts and payments were properly recorded by the person/s responsible was the main objective.

During the medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the accounts read out for them and checked that the organisation's personnel were not negligent or fraudulent. This was   

originally an oral process with accounts being read out to the auditors.

This made the sort of secrecy that was in play in the KPMG/SARS case virtually impossible in those days.

Then came the 18th century, with its industrial revolution and mass production, which spawned joint stock organisations, companies with shareholding by investors. The investors have an interest in the accounts of the company, and auditing firm were born to facilitate independent, and accurate reporting to shareholders.

Over time additional elements, beside the narrow financial were added to ‘audit.” A physical facility, of instance a road network can be subjected to and audit to ascertain its efficiency, safety, and the like.  In short, audit nowadays can be used as almost a synonym for the ‘evaluation’ of just about anything on die basis of recorded, or observed, facts.

However, having become a business in its own right, the KMPG experience has exposed the need to find some way to audit the auditors, who’s supposed “independence” is in many instances become largely a fraud in itself.

As an old political colleague or mine would have put it: “Who is watching the watchdog?

by Piet Coetzer

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Final Word

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