Audit superhero Captain Can’tCount to the rescue

Despatch, Finance & Tax||

“Which #AuditorProud superhero are you?” asks Australia’s peak chartered accounting body today.

“Are you an auditor? Take the quiz as we celebrate true superheroes #AuditorProud Day, 28 September 2017. #AuditorProud is a fun global initiative launched by the Centre for Audit Quality in the United States in which we partake to create the buzz around the world about the audit profession.”

This correspondent is no auditor but we took the quiz anyway and here is the result:
“35% Superman, 20% Spider-Man, 20% Iron Man, 5% Wonder Woman, 20% Batman, and 100% superhero!”

The 5 per cent Wonder Woman is a nice touch but the reality is these results are about as reliable as many of the financial statements of multinational companies we have investigated over the past ten years.

The latest is pharma giant Sanofi, audited by superhero Captain Can’tCount, EY.
EY has heroically managed to sign off on accounts where the balance sheet doesn’t add up in three seperate years, where there is a $50 million black hole in interest payments to some unidentified mysterious entity, where audit fees have not been disclosed one year and the purchase of property, plant and equipment has been booked as a “cash inflow” in another.

Excusez-nous: French giant Sanofi takes Australia to the cleaners

The tail-fins on this bat-mobile of slipshod auditing are spectacular. Sanofi has managed to file its financial statements a total of 2,873 days late. Its accounts were late every single year of the past 12.

Both Sanofi and EY declined to respond to questions for this story. They did their Invisible Man routine. They always turn into invisible man when the baddies who won’t rewrite their press releases come calling.

EY is too busy making hundreds of millions from tax advice and other professional services to stress about falling audit standards. Here is one of EY’s finest, sadly since passed:

The Scarlet Pimpernel of funds management

#AuditorProud Day is an exercise in public relations and morale boosting. While in Australia, Africa, Canada, Switzerland – across the world today – there are declarations of pride on social media, the profession has a fundamental, irreversible problem.

It is dominated by four global firms whose conflicts of interest and focus on profits are wrecking audit standards and the integrity of the profession and undermining trust in financial institutions and markets.

Who is auditing the auditors? Nobody. They have become too big, too big to fail and entirely unaccountable.

Audit has become a “loss leader”, compromised by the other parts of the Big Four’s operations: the riches flowing from tax advice and other professional services. Audits cannot be trusted. This is by no means the fault of the individual, there are many fine people, as in any field of work. It is no fault of the young auditors declaring the pride today on Twitter.

It is just the system, a transnational juggernaut which is answerable to nobody, which transcends governments and needs to be busted up.

Black holes are by no means the exclusive realm of EY and Sanofi. Whether it is Australia’s biggest bookmaker, British multinational William Hill, and Deloitte 
or financial services giant American Express and PwC, black holes abound.

Sanofi though is our most recent outing, and it is a quintessential case of audit failure.
In the 2014 and 2016 accounts, the balance sheets don’t add up. It may be by $1,000 but no matter, they are supposed to add up. The loss after income tax in P&L for the 2013 accounts doesn’t tote either.

Then there is the Statement of Cashflows in the 2014 accounts where the purchase of property, plant and equipment is shown as cash inflow. Captain Can’tCount has somehow, heroically, been able to turn an outflow of cash into an inflow of cash.

The superhero skills were again evident in the 2011 accounts of where a mysterious $50.2 million in finance charges magically appears, besides $44.8 for charges on Redeemable Preference Shares. But when you go back to the balance sheet you can only see the RPS debt. There is no sign of the debt from which these $50 in charges arose. That’s cash out … somewhere. This may be nothing more than an oversight, perhaps.

Finally, like so many other multinationals, Sanofi has pulled the shutters down. It switched early from General Purpose to Special Purpose reporting but there is no mention in the 2006 financial statements, either by directors or the auditor, for the sudden reduced disclosure.

Make no mistake, the problems of financial reporting are endemic. Also this week, we revealed the accounts for the nation’s most elite business body, Business Council of Australia, had been filed late for half of the past two decades. No explanation, and apparently no penalties. And no explanation from auditor PwC either:

BCA investigation: power of the business lobby in Australia

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