Audit is Trustworthy

Chris Ekeigwe

T

he last four decades in the accounting and auditing profession has been serried with financial crisis precipitated by corporate failures, such as the Savings and Loans industry debacle, Carrian Group, Texaco (1980-1989), Bank of Credit and Commerce International (BCCI), Barings Bank, Long-Term Capital Management (1990-1999), Enron, Adelphia Communications, WorldCom, Parmalat, Bear Stearns, Northern Rock, Lehman Brothers, AIG, Nortel (2000-2009), China Medical Technologies, Banco Espírito Santo, Theranos, Wirecard, FTX, Silicon Valley Bank, Signa Holdings (2010-2023), to mention just the significant few.

The formative years of a generation or two of adults living today were filled with bad news about the financial crisis.  And because of how the news is reported unexamined, auditing is unfairly blamed for the corporate failures, foisting on the profession the invidious reputation that audit is not trustworthy.  It is a huge formative misinformation.

This generation has been instilled with ideas of accounting and audit suffused with vocabularies of infamy and negativity, instead of righteous vocabularies that solemnly describe the sanctity of accounting and auditing.  They never saw an accountant or auditor on the front page of a major newspaper or magazine for having “conferred the greatest benefit on mankind” per Alfred Nobel’s criterion and therefore being awarded the Nobel prize.

One of the painful consequences is the drying and leaking of the pipeline of accounting.  Young brilliant minds tend to choose career in professions that are lined with inspiring noble vocabularies and prizes because as noted by Brooks (2015),  “tales of the excellent can lift the ambition of the living.”

The young ones are not hearing any tales of the excellent minds that drive the accounting profession and our civilisation, they only hear of the few villains who deviate from the hallowed accounting promise of trust.

The angst of financial crisis is always salient and palpable.  Society needed answers.  What happened, what failed, who failed, etc? And what to do to prevent recurrence.  There were no definitive answers; meanwhile the financial crisis only became recursive in those decades.  The markets and society needed a crutch and a scapegoat to heap the blame on and salve the pains of financial crisis.  Reacting with the typical impetuous investor heuristics in the sea of misinformation, they called everything happening in the crisis audit failure. Because of the cognitive salience of the pain of financial loss it was easy to uncritically accept that auditors were responsible for all the failures.

The unexamined invidious blame stuck, even though it was based on misinformation.  Once etched into the doxastic state of society it became difficult to change, with the result that now audit is struggling to restore trust in the trust that it produces for society.  An invidious verdict of untrustworthiness has been foisted on the profession.

Given this indurate invidious belief that audit is untrustworthy, which by now has become a classic case of belief perseverance, we need a confident mantra that is thematically exciting, fascinating, persuasive, receptible, a potent “counter-speech” (Siebert & Siebert, 2023)  to respond to the enduring misinformation that unexamined audit failures indicate that audit is no longer trustworthy.  We need to enlighten society with the truth that it needs to extinguish the incorrect belief in unexamined audit failure narratives. We need a mantra that is ideated, couched and nuanced to have palpable substantivity – persistence of impact on the hearers – even in the absence of auditors; it should well up in their minds whenever questions are raised about the reliability of audit.

The late eminent psychologist and Economics Nobel laureate Daniel Kahneman (2011),   explained that:

“A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth.”

Therefore, if frequency matters for familiarity and truth, a solemn resonant mantra is needed to counter the audit failure misinformation and inculcate investors, the markets, and the society with the inspiring sentiment of audit trustworthiness.

Having contemplated this for decades (I wrote my first advocacy article for accounting in 1982) and tried a couple of advocacy things, and bearing in mind the attributes of an inspiring mantra mentioned above, I have finally arrived at this coruscating pithy mantra, “Audit is Trustworthy!”

The mantra is solemn, eloquent, succinct, and saliently perseverant.  It is demonstrably faithful and true, and deserving of full acceptance.  Its verity is evident in the epic ascent of our civilization that is built on the trust that accounting, audit and auditors produce (Soll, 2014)  – the taste of the pudding is in the eating.  Its brilliance will edify society and wring out its incorrect beliefs about audit failure.  Therefore, the mantra should empower accountants and auditors to reassert trust in our primal role in the match of civilization.

I am suggesting here that this novel mantra, Audit is Trustworthy, should henceforth be confidently on our lips anytime we are talking with professional colleagues, clients and anyone who asks for reason for the trust in audit.

To be effective advocates of accounting and audit with this mantra we need to educate ourselves in the history of the progress of our civilization to know the role of accounting in it.  We should study and understand failure so we can persuasively and truthfully explain it to society and its leaders when entities fail.

We need to constantly remind society that accounting has been a perdurable faithful companion in the match of civilisation.  All predictions of the anticlimax of accounting and auditing in moments of fleeting aberrations, from the Medici family’s bad accounting to the collapse of Enron and SVB, have historically failed because of the verity of the accounting promise of trust.  But the invidious belief of audit failure has become indurate.

Therefore, our mantra will continue to shatter the myth that audit is untrustworthy in a more visible way by practical explanation of audit failure.  For example, I have explained that “the only way to stop it [failure] is to halt the torsion of the market, but that is not what we need, the market needs to be in constant motion.  The market lives just like the earth spins and experiences tensions necessary to maintain its balance, e.g., earthquakes.”  

According to (Jacoby, 2023),  “To those they affect, earthquakes are harrowing and tragic. Yet, unfathomable as it may seem, they are also essential to human existence. For without plate tectonics — the movement and collision of the immense subterranean slabs of the earth’s crust, which trigger earthquakes, tsunamis, and volcanoes as they shift and slide — our planet likely would not be habitable.” 

Affirming the inevitability and benefits of earthquakes, Williams J. Broad (2005), the New York Times veteran science reporter, wrote after the December 26, 2004 Indian Ocean earthquake and tsunami:

“They approach the topic gingerly, wary of sounding callous, aware that the geology they admire has just caused a staggering loss of life. Even so, scientists argue that in the very long view, the global process behind great earthquakes is quite advantageous for life on earth — especially human life.”

 So too, the torsion of the market produces obligatory losses and audit failure is part of it because of the inherent errabilities of counting, accounting and auditing in the quandary of the cauldron of the market.  This makes residual audit failure literally self-explanatory.  But to deal with the damage already caused by the false audit failure narratives accounting and audit need strong advocacy, globally.

With our united emergent confident voices of advocacy, Audit is Trustworthy will not become a stale platitude, its inspirational powers will persevere.

Your emergent confident declaration of the mantra “Audit is Trustworthy” will nullify the invidious incorrect belief that audit is untrustworthy.  Please rise and proudly join the chorus – “Audit is Trustworthy!”

Audit Is Trustworthy! – it is undaunted by the vagaries of imperfection

Hence, Arthur Levitt, Jr., Former Chairman, US SEC, urges us to “speak out on behalf of the most underappreciated group … Accountants (and Auditors).”

Reading about the match of our civilisation as enunciated by historians you will notice the objectivity of this statement “Audit is Trustworthy!” confirmed by the sentiment of serial repeatability of the trustworthiness of accounting in nation building expressed here by Soll (2014):  “Whether building a road or fighting a war, leaders from ancient Mesopotamia to the present have relied on financial accounting to track their state’s assets and guide its policies … From renaissance Italy, the Spanish Empire, and Louis XIV’s France to the Dutch Republic, the British Empire and the early United States, effective accounting and political accountability have made the difference between a society’s rise and fall.

“Over and over again, good accounting practices have produced the levels of trust necessary to found stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest and worse. … What is remarkable is that the basic lessons of medieval Italian accounting – that it is essential to wealth and political stability … – are still as pertinent today as they were seven hundred years ago.”

In concatenation of reasoning, therefore, Audit Is Trustworthy!

Say it with pride, because it is not just verifiable, it is verified, it is not aspirational, it is a living history still happening now, yes, society continues to depend on audit to produce the ballast of trust on which civilization thrives.  “We need to constantly remind society that accounting/auditing has been a perdurable faithful companion in the match of civilization.”

Audit is Trustworthy!

I made the assessment that establishing global advocacy for Accounting is justified at this time, and it would be my humble way of expressing deep gratitude for all that the profession and its people have done for me and yet will do. I do it with solemn responsible passion.

Our first advocacy should be to keep the hallowed “accounting promise” by practicing the profession sedulously with deserved sanctity – not leading society to trust the untrustworthy and not acquiring prosperity in a manner that exploits the vulnerabilities of society.  I solemnly kept the hallowed accounting promise, just like many of you did and do.  That too is a solemn advocacy.

With evident demonstration we confidently say, proudly: AUDIT IS TRUSTWORTHY!

Ekeigwe, FCA, CPA (Massachusetts) is the Founder/Chairman, Audit Committee Institute. He can be reached via Christian.ekeigwe@gmail.com