Who will audit audit firms?


Could it be that some audit firms connived with concerned organisations’ directors to conceal information and doctored reports to hoodwink investors?

Robert Mandeya

FROM a simple understanding, part of the role of audit firms is to enhance or promote governance related practices in organisations not least advising on appropriate governance structures, processes, commercial issues, compliance, risk management and professional administration.
What is, however, disturbing is how most of the companies that collapsed had been cleared of any business malpractice by some of the most reputable accounting firms.
Since 2008, we have had reports of false accounting.
If properly advised, good corporate governance does not need to be unduly complex or burdensome.
Instead, good governance principles and processes should be practical in their application, cost effective and most importantly, a business enabler that facilitates the achievement of overall business strategy and not governance for the sake of governance.
I am not sure if reports generated by audit firms that audited the companies that later collapsed, upheld and or properly advised organisations on viable business practices.
Even more disturbing is that some of these reports actually indicated sound financial positions and healthy business projections just before the collapse.
Could it be that some audit firms connived with concerned organisations’ directors to conceal information and doctored reports to hoodwink investors?
There is a compelling reason for shareholders to call for an investigation of these audit firms implicated in corporate malpractices of collapsed companies. It is my considered view that an audit of the activities and operations of some of these audit firms during the period under review should be carried out.
World over, business people acknowledge that risk management and compliance are integral features of a successful business model and have turned their full attentions toward raising the standards across the financial services, and corporate industry for corporate governance and risk management systems.
In Zimbabwe, it would seem that some audit firms failed to uphold proper ethical standards of doing business and, instead, aided the collapse of many of those organisations.
In that case, can we not hold these firms liable to dereliction of duty and criminality in those companies implicated in corporate malpractices?
If the truth be told, they were complicity in defrauding investors and shareholders of millions of dollars.
The value of bringing seasoned perspectives and new insights into the corporate governance dialogue cannot be overstated, particularly today, with the pace of technological change, globalisation and regulatory pressures shaping the way businesses think about risk, strategy, talent and long-term performance.
Such critical insights can change the course of business — if not a major business decision — entirely.
In this whole new discourse, what is the role of audit firms in ensuring best business practices in Zimbabwe?
What are the key challenges facing audit firms, on matters relating to audit effectiveness and other priorities?
It is incumbent upon those boards of such professional groups to identify gaps and emerging risks with a view to sparking fresh conversations about how audit committees and boards should strengthen their oversight roles.
The primary aim is to raise the standards of governance in Zimbabwean business.
One of the questions today is: What areas do we, as shareholders, need additional reporting/communication from the audit committee to provide more insight into the work of the audit committee?
What this tells us is that a significant number of audit committee members still need to grasp the messages of the investor community who are generally pushing for greater transparency and communication from those charged with stewardship, including the external audit firms.
There is now a greater demand for companies to demonstrate to shareholders the significant and stewardship role which the internal and external audit job entails. There is a whole new approach as companies constantly compare their reporting systems to that of their peers and as pressure from shareholders and standard setters increase.
However, there are matters beyond reporting, including broader governance matters and those connected with the quality of controls, processes and people, the alignment of the company’s ethical and compliance programmes with new vulnerabilities to fraud and misconduct keeping on top of technology advances.
Industry needs to understand that good governance helps to create economic value and in the case of family-run businesses, assists the emotional well-being of the family and others with a stake in the company. It demonstrates that the owners are taking responsibility for their employees and other stakeholders, and helps to ensure the long-term survival of the family or corporate enterprise.
Effective governance calls for a board of directors and a management team, where each member understands their role. A clear vision and related business policies, along with formalised interactions between governance bodies and key stakeholders, is also key. Ultimately, it offers the opportunity for open dialogue among key stakeholders, including employees to discuss and tackle organisational concerns.
In Zimbabwe, institutions such as Internal Control Institute of Zimbabwe should be given due recognition and allowed to play their role in strengthening internal control systems of organisations.
As an organisation generally exists to benefit its members/shareholders in a material way, while taking into account the needs of a wider group of stakeholders, there should be a direct line of accountability for performance and for achieving the outcomes for which the entity was created.
Shareholders on their part should begin to raise questions about the operations and practices in organisations where they have invested.
As shareholders, we should be more vigilant and participatory in the affairs of the business we co-own.

Robert Mandeya is a shareholder activist with Shareholder Activism Zimbabwe. The views contained herein are purely personal. For your views and comments you can contact him on; mandeyarob@sharehoderactivism.org.zw

Follow us on Twitter on @FingazLive and on Facebook – The Financial Gazette