Auditor’s Business Acumen

I was privilege or should I say, I am privilege to have a career as an auditor in large organizations in South East Asia and the Middle East. For the last nine to ten years, I was able to navigate businesses and learned different businesses. I was able to meet people involved in the operations of the business who are responsible for running its day-to-day activities.

I realized, though many would object, that being an auditor will not make a person a good businessman. Auditors, in general, are devoid of business acumen and foresight. They do not see the future for they are tied in the past. While IIA publications promotes auditor as business partners, I would say that, typical internal organization promotes bureaucracy and undermine management prompt response to changes and daily management dilemma.

One of the business philosophies which auditor may not be able to comprehend is this—sometimes we pay in the form of loss to learn how to run a business. When auditor reviews the company’s financial statements, they perform income and expense trend analysis. If the business incur significant decline in profit or loss, they would ask the management (i.e. Finance Manager or CFO), the reason why. Say, the CFO goes on to explain that the new venture in country X has failed and did not perform as expected. The auditor will then ask if there was a market survey and complete analysis of the situation. And he goes to probe whether there are guidelines, policies and procedures on these processes; what controls are in place to ensure that necessary steps were undertaken to come up with the informed decision. After considering the three “C’s + E” – condition, cause, criteria, and the effect, they will write an audit report criticizing the management for their failure to consider certain controls which eventually lead to such disastrous investments.

Businessmen are visionaries. Their good business acumen enables them to see things 5 to 10 to 15 to 20 and so on years beyond. They braved storms no matter how strong it is. They make decisions to invest in business even the various studies and evidences at that moment suggest that it will be disastrous. Their judgment is based on gut and not on black and white document in front of them. They only use these black and white documents to confirm their feelings or to see what may lie ahead of them. But this is never the basis of their judgment.

In a meeting with the Carrefour – MAF Hypermarkets executives, that after two years of operation in 1997, the Carrefour Hypermarket is not performing well and that they planned to close down the operations. But the owner of the Company is so optimistic about the future. After just 10 years, the Carrefour Hypermarket has about 30+ stores all over the Middle East. These are just some of the things that an auditor will not be able to comprehend.

In fairness to internal audit organizations such as IIA, they tried to fill the gap between the auditors who are not businessmen themselves and the management. Sadly, few internal audit organizations were able to apply this. One which I would say has able to do it vibrantly was the British American Tobacco (BAT).

To this light, I decided to be not an auditor starting January 31, 2010. I am then a businessman!

 

By Jefferson M. Espeleta, JCL-BPO Board of Director for Internal Audit


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