AUDIT PROCEDURE.

Hokitika Guardian, 4 March 1925, Page 4

AUDIT PROCEDURE.

WELLINGTON, Feb. 27. “Present-clay Audit l 1 notice and Procedure,” was the subject of an address by Mr A. C. iSeaman, of Auckland and Lecturer in Accountancy at Auckland University. An auditor, said .Mr Seaman, was primarily a hearer, and if this were realised there would he less misunderstanding of the auditor’s duties, lie attended not to prepare accounts but to hear explanations, eiher verbal or written, of the accounts before him. “NOT BLOODHOUNDS.” The profession has a real grievance against the learned judge wtm ce•cribed an auditor as a "watch-dog. but not a bloodhound.” Of old. students had been told that the duties of an auditor were to detect fraud and prevent errors ; and with same H-xlbuon writers, the notion ot protecting a master’s property had Leonine almost an ohession. Hut later had come the conception that the primary duty was u, ascertain the actual position of a company for the shareholders or ownTO CMYK ADVICE. Tu modern practice the auditor was sometimes expected to proffer advice on the financial position of the <<mipanv, and was looked to as a general adviser even on policy matters, though strictly speaking such were not the functions <>f an auditor. The auditor’s legal liability lay under the common law rule that a man havin'' undertaken to do work must tin it completely. But this law did not embrace third partied where there was no contractual, relationship. 1 bus an auditor might negligently have passei and certified an inaccurate balancesheet. on reliance of which a hanxei might advance money, financial loss resulting. Apparently they had no recourse against the auditor unless tie lout knowingly certified to the inaccurate balance-sheet. NOT .MOST IMPORTANI.

The detection of errors was far from being the most ininorlant part <>l an auditor’s duties, and even the detection of fraud was not the most vital line of action; and yc-L how many auditors were found laboriously checking a mass <jl detail in wlr»< a theic was hltu chance of fraud or of substantial error? In most eases the auditor who wallowed in detail lacked imagination The checking of a large number ol postings and totals would take so long that the limits of time and ol remuneration would lead to a restriction j f the work in other directions. An auditor who was not better than a ‘ticker was not worth the fee paid him. and In.clients would nearly all estimate _ Ins work..ai its true value, and would place the rc-t of his brethren on the same GOVERNING Til K TJALAXCK-SHKKT Tho primary responsibility placed by the Companies Act on auditors acting under the statute was that, of ensuring the accuracy of the balance sheet to be'l'id before the shareholders; this involving the only slightly less important .duly of verifying in all its details. Stuck valuations were largely a matter of opinion, and varied from day to day. Nevertheless, the auditor had to ensure that the balance sheet was propcrlv drawn up. so as to exhibit a true view of the affairs of the concern. Mr Seaman went on to discuss the technical details of audit procedure, concluding bv urging that the proiession should keep up with the times. ‘‘V ie times change, and we with them.'’ lie cpioted.

“QUITE VALUELESS. ItIiCKII’TS PASSED BY AUDIT. “To he honest, we must admit- that we have produced to us, and we pass a- being in order, thousands of rereceipts that for our purpose are not worth the paper that, they are written .in." said Mr A. C. Seaman, in an address to tile cinfcrcmc. “ V straightout receipt, on a stock form, signed by someone whose signature we do uoi know, is worth nothing as proof of payment to the proper poison, and we might just as well admit it. Man,' business concerns give receipts in a most haphazard way, while some ol Ihe largest wholesale concerns in the Dominion give receipts that arc valueless, nr even wor-e than valueless, in an auditor endeavouring to establish the propricly ,-f payments ami their rc'-ipl ill the proper qunDcr--. Seicral large .•..aipaoic - t;i- hiding I” my kmiv. I ••tge a! lea : two ihiiii;. luismc,a I hrj grn out New /'■aland, giro receipt; that record only the date, and the umuuot in figures, 'while others though lecording the payer's name, do mil express 11 it* amount properly.

s itisiac!nrv a voucher win 4i * oes cut identify the payment as received Irom my client, hut I am certain, that tins attitude is not general in the profession, nr the resulting trouble wood soon cause the olfeuding form- be abolished. A receipt, to be t l.oruughK suthfactory, should l.e dated, state the payer’s name. g,ve the amount in words as well as in figures to prevent manipulation, and should be nil a propel - form if given by a business house. Receipts given in this form tend to prevent fraud, and I consider that all auditors should endeavour to keep llieii clients out of the list ol ollemlers against commercial security.”