Since we’re on audits/assurance engagements… The University of Florida published a study earlier this year about one way companies hoodwink (or bully, really) auditors. Overall, the study found “troubling inconsistency in how auditors respond to difficult clients during business financial audits.” The research showed that those being audited are “aware of this tendency among auditors and strategically exploit it”:
“If someone knows that an auditor can be put off by just being a little difficult, they can use that to cover up bad behavior,” [one of the study’s authors Dan] Rimkus said. “They don’t worry about that looking suspicious, because they anticipate auditors not wanting to follow their nose on those suspicions.”
The inconsistency? “Staff auditors increase their skeptical judgments in response to uncooperative clients, but also decrease their skeptical actions.”
These results apply to non-financial audits as well, including in the ESG/sustainability space where auditors are frequently young and junior-level. Internationally, they can also face social system pressures that add to decreased skeptical actions. I know someone in the social audit world who frequently talks about needing auditors that know when they are being lied to. But that is only part of the auditors’ skill set – they also must properly react/respond in those situations.
I recall two instances where difficult clients particularly stand out. When I was in-house environmental audit staff, a facility EHS manager once refused us open access to site environmental records, demanding we request individual documents that he would retrieve for us. That raised red flags immediately but we tried. It only took a couple hours for this process to become obviously ineffective. We called in-house counsel requesting that the audit be cancelled as there was no way to perform a credible audit under the circumstance. The lawyers agreed. Internal political fallout from that person’s lack of cooperation was surprisingly significant and another audit was conducted later without difficulties.
The other time, I was an external auditor hired by the board of directors of a company in the energy industry. I found a major waste management issue that could have easily been called criminal (knowing, willful, intentional). Their arguments were not supported by documentation or direct observations. I stuck to my guns and the intimidation started. The closing meeting was held in a too-small conference room where everyone was smoking except me. When that tactic didn’t work, my personal safety was directly threatened. That being unsuccessful, they threatened to not pay our fee unless we removed that finding from the report. In the end, the finding stayed, the board paid our fee and directed the facility make appropriate changes, and their in-house lawyer found himself seeking new opportunities.
Auditors – don’t let clients put up obstacles in following your suspicions.
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