Lord Denning’s famous quote, “An auditor is a watchdog, not a bloodhound,” was a reflection of the traditional view of an auditor’s role and duty. This view posits that auditors are responsible for reviewing the financial statements and internal controls of a company to provide a reasonable assurance that they are free from material misstatements. They are expected to be vigilant and alert, but not necessarily to detect fraud or dive deep into every detail.
However, the expectations of auditors have evolved significantly in recent years due to several factors:
- Corporate scandals: High-profile corporate frauds and accounting scandals (e.g., Enron, WorldCom, and more recently, Wirecard) have led to increased scrutiny of auditors and a heightened expectation that they should play a more proactive role in detecting fraud and ensuring financial integrity.
- Regulatory changes: In response to these scandals, regulatory bodies around the world have introduced new standards and guidelines to strengthen the audit process. For example, the Sarbanes-Oxley Act in the United States and the European Union’s 8th Company Law Directive have imposed stricter requirements on auditors, including a greater emphasis on fraud detection and assessment of internal controls.
- Technological advancements: With the rapid growth of technology, auditors now have access to advanced tools and techniques, such as data analytics and artificial intelligence, which enable them to analyze large volumes of data and identify patterns or anomalies more effectively. This has expanded the scope of an auditor’s role and their ability to detect irregularities.
- Stakeholder expectations: Stakeholders, including investors, regulators, and the public, now expect auditors to take a more proactive and comprehensive approach to their work, particularly in detecting fraud and ensuring the accuracy of financial statements.
In light of these developments, the traditional view of an auditor as a watchdog may no longer be sufficient to meet the expectations of stakeholders. Auditors today are expected to be more like “bloodhounds,” actively seeking out potential issues and fraud rather than just passively reviewing financial statements.
This shift in expectations has led to a reevaluation of the auditor’s role and duty, with a greater focus on:
- Fraud detection: Auditors are now expected to have a more in-depth understanding of fraud risk factors and to apply this knowledge in designing and executing their audit procedures.
- Internal controls assessment: Auditors are required to assess the effectiveness of a company’s internal control system and identify any weaknesses that may lead to financial misstatements or fraud.
- Communication and collaboration: Auditors are expected to work more closely with management, boards of directors, and audit committees to address potential issues and improve the overall quality of financial reporting.
- Continuous improvement and professional skepticism: Auditors are expected to continuously improve their skills and maintain a healthy level of professional skepticism to identify red flags and challenge management assertions.
In conclusion, while Lord Denning’s view of auditors as watchdogs may have been accurate in the past, recent developments have transformed the role and duty of auditors. Today, they are expected to be more proactive, vigilant, and skilled in detecting fraud and ensuring the accuracy of financial statements – more like bloodhounds than watchdogs. This shift in expectations has led to a more robust and comprehensive approach to auditing, ultimately enhancing the credibility and reliability of financial reporting.
About the Author
Dr. Dawkins Brown is the Executive Chairman of Dawgen Global , an integrated multidisciplinary professional service firm .
Dr. Brown earned his Doctor of Philosophy (Ph.D.) in the field of Accounting, Finance and Management
He has over Twenty Six (26) years experience in the field of Audit, Accounting, Taxation, Finance and management . Starting his public accounting career in the audit department of a “big four” firm (Ernst & Young), and gaining experience in local and international audits, Dr. Brown rose quickly through the senior ranks and held the position of Senior consultant prior to establishing Dawgen.
He is a member of Chartered Management Institute (CMI), member of the Institute of Internal Auditors (IIA) , member of the Association of Certified Fraud Examiners (ACFE), member of Information Systems Audit and Control Association ( ISACA ) member of American Planning Association (APA) , member of the American Finance Association (AFA) and member of Association of Certified E-Discovery Specialists (ACEDS).
As Executive Chairman of Dawgen Global , he is responsible for the strategic guidance and strategy execution of several entities within the Dawgen Global Group.
