Perhaps we could remind Richard J Murphy of something?

It is known, after all, that this issue was discussed by the auditors of all banks in 2008. This was revealed in parliamentary interrogation of them some years ago when it was also hinted that assurances on bail outs were, in effect given, and were relied upon. But that was not enough in the case of HBOS and it was not referred to in the accounts.

In that case questions as to whether there was an unspecified standard in play here, or whether the standards were simply inadequate, or whether the FRC feels it can simply ignore obvious attention to an obvious failure referred to it by a parliamentary committee are all in play because what is beyond any reasonable doubt is that there was an audit failure.

In that case I sincerely hope that this issue returns to parliament. Auditing deserves to be in crisis over this issue. The Treasury Committee needs to bring that crisis specifically into the open, and add the role of the supine FRC into its remit. Then this failure may be subject to appropriate review. Right now it is not.

OK. So, let us ponder what an audit is and what it is supposed to do:

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.’

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The basic function of an audit as currently practised is to confirm that reported transactions actually took place, not to root out dishonesty. Current thinking in corporate governance puts increasing responsibility for the latter on a company’s directors.

‘Deep down, every auditor knows he is on a hiding to nothing,’ says Murphy. ‘Every time he signs off a “true and fair view”, he knows that another view could be perfectly possible.’

And just possibly someone signing off on an audit in February 2008 is not supposed to know that the financial markets are going to go kablooie in October 2008. Just a thought, eh?

I would, of course, hope That Richard J Murphy will be asked to give evidence to any such Treasury Committee investigation. And be asked about his stated views on the value and purpose of audits.

7 thoughts on “Perhaps we could remind Richard J Murphy of something?”

  1. But Tim – that was before his damascene conversion from dodgy tax avoiding accountant to the worlds ultimate guru of everything. How can you mock ?

  2. I thought there were oblique statements by the bank auditors that they were leaned on hard by Government, or public bodies at least, to NOT raise the likes of going concern issues in their reports?

  3. A useful reminder that the most detestable aspect of Richard Murphy is his lack of personal integrity, which manifests itself as intellectual dishonesty. We spend so much time zeroing in on his various stupidities that we often forget the wellspring of it all is that lack of personal integrity.

  4. I think he does have personal integrity. Just that it changes from moment to moment and is ‘for the greater good’ – a very high ideal which enables him to change his mind about everything 3 times before breakfast if he can see or hear something each time that causes him to change his mind.

    Rather than the more common personal integrity that focuses on a viewpoint and sticks to it come hell or high water. The people with that more common personal integrity get more admiration and respect from me.

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