20-04-2017, 10:41 AM
Hi all,
I just wanted to share with you a real-life story of one of my accounting professors.
Just to give some context: My professor was a fresh manager in one of the big four accounting firms in India and he was assigned to do an audit of a company that runs coal-mining operations. (He mentioned that coal-mining operations were notoriously abused for its ability to launder money as it has high cash balances and inventory.) He went there with his team of auditors 3-5 people (did not mention exact number) for a week.
The coal mine was located in a rural part of India, you had to take a domestic flight then a 5-6 hours drive to the actual site of operations. When he reached the site for his audit he felt that the atmosphere was some what hostile. The employees would be avoid talking to the team or be slightly evasive when talking to them. After a the first two days, one of the employee came up to him and said to him: "Lets take a walk, I have got a story to tell you." So he brings him aside and tells him a story about a former auditor.
The story goes... [A couple of years back, there was this auditor, young and very hardworking. He did his audit very well and he found a material misstatement in the cash balance. He followed protocol and submitted a report back to his audit partner to indicate that there was a material misstatement. The partner then informed him that they will look into it and for him to wrap up the audit and come back. However, this auditor being very diligent decided he would do more digging. He found other smoking guns within the company's financial accounts and wrote up another report. The next day he was found dead on the railway tracks.]
Now, just put yourself in my professors' shoes for one moment. What are you going to do? Someone just threatened your life. Are you going to do the same level of digging?
My professor did complete his job of reviewing the cash balance, but he did it intelligently without breaking any laws. (Whether it was ethical, I will leave it for you to decide.)
The next day at lunch, he got his team of auditors to seat at the other end of the canteen. Then he shouted over at them and said "Hey team, let's do the cash count on thursday!" Sure enough when they did the cash count, the numbers tied exactly.
The point of this story is to emphasize the point that auditors only express their opinion on whether the financial statements are free of misstatements. (Please note: Although the financial reports are prepared by the auditors. All numbers are provided by management.) Hence, I would like to point out that some numbers do lie and also don't completely rely on financial statements.
I just wanted to share with you a real-life story of one of my accounting professors.
Just to give some context: My professor was a fresh manager in one of the big four accounting firms in India and he was assigned to do an audit of a company that runs coal-mining operations. (He mentioned that coal-mining operations were notoriously abused for its ability to launder money as it has high cash balances and inventory.) He went there with his team of auditors 3-5 people (did not mention exact number) for a week.
The coal mine was located in a rural part of India, you had to take a domestic flight then a 5-6 hours drive to the actual site of operations. When he reached the site for his audit he felt that the atmosphere was some what hostile. The employees would be avoid talking to the team or be slightly evasive when talking to them. After a the first two days, one of the employee came up to him and said to him: "Lets take a walk, I have got a story to tell you." So he brings him aside and tells him a story about a former auditor.
The story goes... [A couple of years back, there was this auditor, young and very hardworking. He did his audit very well and he found a material misstatement in the cash balance. He followed protocol and submitted a report back to his audit partner to indicate that there was a material misstatement. The partner then informed him that they will look into it and for him to wrap up the audit and come back. However, this auditor being very diligent decided he would do more digging. He found other smoking guns within the company's financial accounts and wrote up another report. The next day he was found dead on the railway tracks.]
Now, just put yourself in my professors' shoes for one moment. What are you going to do? Someone just threatened your life. Are you going to do the same level of digging?
My professor did complete his job of reviewing the cash balance, but he did it intelligently without breaking any laws. (Whether it was ethical, I will leave it for you to decide.)
The next day at lunch, he got his team of auditors to seat at the other end of the canteen. Then he shouted over at them and said "Hey team, let's do the cash count on thursday!" Sure enough when they did the cash count, the numbers tied exactly.
The point of this story is to emphasize the point that auditors only express their opinion on whether the financial statements are free of misstatements. (Please note: Although the financial reports are prepared by the auditors. All numbers are provided by management.) Hence, I would like to point out that some numbers do lie and also don't completely rely on financial statements.