Detecting irregularities;

              2 HASKINS & SELLS January
Detecting Irregularities
WOULD a public accountant who
made an audit and failed to dis­cover
irregularities through which $2,500
had been abstracted from the client's funds
be open to criticism? He would. If he
failed to find a wrong costing method which
was speeding the concern on to bankruptcy,
would he be equally censurable? He
would.
In the first instance the damage to his
reputation would be considerable. No one
can say how much. In some such cases
there might be mitigating circumstances;
or circumstances beyond the control of the
accountant. But in the eyes of the public
he would, in all probability, be roundly
blamed.
In the second instance, the chances are
that nothing would ever be heard ,of the
defect in cost-finding methods, at least,
not until a receiver had been appointed.
And there would be plenty of persons who
would contend strenuously that an auditor
is not expected to discover deep-seated
defects in a cost accounting system. Gen­erally
speaking, this would be the attitude
of the public.
The up-bringing of the public is re­sponsible
for the attitude in each instance.
The press has regaled the public with
stories of irregularities. The popular con­ception
of auditing is that it discovers
irregularities. Here and there may come
a faint ray of true conception as to the
proper functions of an auditor. By and
large he is regarded as a detector and dis­coverer
of any and all stealings, irrespec­tive
of their size. He has not yet been
broadly credited with skill in detecting
mistakes of policy and procedure and
charged with the responsibility of passing
judgment on these matters as they are
revealed by a study of the accounts.
Too much importance is undoubtedly
attached by the general public to the effec­tiveness
of the audit process in detecting
fiduciary lapses. By the same token too
much in this respect is expected of public
accountants in connection with the ordi­nary
audit engagement. Wherein lies the
wisdom of devoting ten days to the discov­ery
of minor peculations when the same
space of time, utilized in other directions,
would have resulted in findings worth
thousands, perhaps hundreds of thousands
of dollars, to the client? The amount of
time necessary to discover shortages many
times is entirely out of proportion to the
amount discovered. Think of the hours
employed in search which have resulted in
the discovery of no irregularities whatso­ever.
But think also of the ignominy
attaching to an auditor where a shortage
exists and is not discovered by the auditor.
A change in audit procedure relative to
checking fiduciary integrity seems to be
indicated. The matter is a ticklish one,
so to speak. The methods used must be