OUTLOOK — By Mohammed Al Balushi — It was said that auditing began around 1750-1850 at the time of industrial revolution. Understandingly, it began at that period because owners of industries wanted someone to check and review what is happening in their industries, in process, and accounting.
Imagine you have a business and it collapsed. How would react? You would be keen to find out the root causes of that went wrong? Imagine you are the head of the department at the ministry, and there is a rumour going around that there is a corruption in your department. How would you feel? Will you wake up and take some actions? Whom do you seek support from to review your business transactions and work activities at ministry? You got it right, they are the auditors. There is a big responsibility on auditors’ shoulders. Previously, managements thought that auditors were “policemen”. Their duty is to catch mistakes and report. Furthermore, they thought that auditors are a disturbance and work criticisers. They got it wrong. The current studies and practices have shown that; auditors are business partners, independent, risk-based, focused, leader, sharing knowledge and a motivator. They are there to safeguard your funds and reputations in the market.
Do you know what will occur in the organisations in the absence of auditors? There would be many high risk open doors where organisations may collapse effortlessly. It means organisations are inviting internal and external fraudsters to play their role. One of the surveys suggested that if there had been auditors on the Titanic, (which sank during its maiden voyage in 1912 after striking an iceberg off southern Newfoundland) who had done a surprise audit on the cash float or the accounts received from passengers and asked the right questions to right people, then the Titanic wouldn’t have sank. Auditors might have discovered the quality of materials from which the ship was made and the findings may have helped save the ship.
The Bank of Credit and Commerce International (BCCI), which was established in late sixties, lost and most of its funds which were used for Anti-Money Laundering (AML). Finally, it went to bankrupt. In the case of BBCI it has been said that the internal control was poor and it lacked a regulatory policy and process. Both the parties were involved in fraud in BCCI, (internal and external). Another big company namely, “Enron” also went bankrupt. The problem was the same “poor internal control”. In Oman some small businesses which cannot afford internal auditors, have become bankrupt. One of the shopping centres, namely “Al Jadeeda”, which was running well in the late nineties gradually became bankrupt because of not having internal control.
However, all such lessons from history indicate that auditors are not policemen but your business partners. They help you to not to become bankrupt. As a business owner it is advisable that you understand the definition of an internal auditor. It has been well defined by the Institute of Internal Auditors (IIA), that; “ Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes."
Nowadays, it has been noticed that most of the organisations are following the Risk Based Internal Audit (RBIA). In this type of audit auditors believe that they can better identify risks and present it to the management. They go on risk-based approach, whether, the risk is high, medium or low, and based on the same the management takes appropriate actions to resolve the problems.
Since, the doors of new skills, knowledge, education, process, and the way of workings are not limited can we think of a new type of auditing? I have an opinion on having a Scientific Based Auditing (SCB), under this type of auditing, auditors will be in a position where they can think scientifically. Their findings will be on based on science. Their risks will be measured scientifically. They will ask scientific questions rather than traditional ones. And, whenever, there is a fraud they can scientifically discover the root cause and action taken.