Called to account

A punchy letter in the FT this week is attempting to keep auditors feet well and truly planted in the soil of humility.

Stephen Kingsley, a former Arthur Andersen partner, writes of some issues auditors would do well to resolve when it comes to confronting fraud.

First, senior auditors may be spending less time with client managers as they rely on remote working and new tech, therefore their ability to “apply common sense judgement” may be impaired. This needs to change, Kingsley believes.

Second, auditors are often slow to cut ties with clients and perhaps should be more ruthless. Kingsley writes: “For a company receiving an auditors’ report—clean or otherwise—is a privilege, not a right.”

Quite right. We’d add that delivering a bad report, if necessary, is a duty, not an impediment to commercial success.

Let’s ask audit

Audit committees received some attention too, this week. This time, it’s about the questions investors should be putting to them. KPMG staffers Sophie Gauthier-Beaudoin and Tim Copnell offer a romp through the kind of interrogation that should be taking place.

They suggest some stiff questions on the committee’s workload, how they’re coping with the new UK governance code and climate risk reporting and the quality of audit, among others.

Reminds me of the time Board Agenda was chatting to one particularly vaunted audit committee chair who revealed that no investor had ever asked speak to them. So, if you’re an investor and shy of audit chairs, you now have some ice breakers.

Credible journey

A lesson from South Korea, where boffins have been looking at what happened to companies during the pandemic.

It seems those firms who performed highly on environmental and social (the E and S of ESG) scores at the time of Covid-19 reaped few rewards. In fact, stock prices didn’t hold up for those who could boast the best ES behaviour. It seems what they should have done is to have banked credibility before the pandemic struck through better governance, then things might have been different.

“Corporate governance in Korea is still not well established,” writes the research team.

“In an environment lacking credible governance, stakeholders may hesitate to trust firms’ ES initiatives, thereby hindering the accumulation of social capital.

“In other words, reliable corporate governance can be a necessary condition for ES commitment to result in the acquisition of social capital.” And that’s a lesson for us all.