Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

Professional care

27 September 2015

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There’s still a lot of debate on the role of auditors. After any crisis, people claim that auditors should have seen it coming and should have warned about it. However, nobody claims that a doctor should do the same. Nevertheless, doctors and auditors both investigate the healthiness of their “patients”. One of the main difference is the role of their patients within society.

Both doctors and auditors call their patients “clients”. Both are paid by their clients although doctors may be reimbursed indirectly through a medical insurance company. In both cases, the patients – sorry, clients – may think they know better than their professional adviser. The auditor is typically more sensitive to that (commercial/financial) pressure.

In both cases, the professional opinion is used by other – so called “third” – parties (e.g., banks, life insurance companies). In case of malpractice, there’s a big difference however: auditors cannot hide behind professional secrecy – unlike doctors. Other doctors are generally not very eager to issue opinions that may then be used for legal purposes – unlike auditors.

Both professions are somewhere in between art and science. Expressing professional (e.g., audit, medical) opinions is based on observations, knowledge, experience but also gut feeling. Patients – or clients – may not always give reliable information about their health.

Doctors claim that there is no competition between doctors. Either a client/patient respects and trust his doctor or (s)he moves on to a more suitable doctor. This situation has become very different for auditors. I think and feel that there’s a correlation between the (start of the) legal audit requirement and the (start of the) deterioration of respect and trust – and audit fees. This legal requirement has created a commodity. And commodities are generally price driven.

Respect and trust of the client is key. Professional liability and legal responsibility determine the boundaries in this delicate relationship. There’s no hiding behind professional secrecy for auditors. Expect full disclosure in case of (alleged) malpractice. Dutch Finance Secretary Jeroen Dijsselbloem recently advised auditors to apply a safe zone before these boundaries are reached. (source)

Although it wasn’t their desired exemption of the EU competition clauses, Dutch doctors were recently allowed to negotiate – as a profession rather than individual professionals – with the medical insurance companies to get better conditions for reimbursement of their professional care towards clients/patients. Negotiating higher prices is still illegal. (ACM, NOS, NRC)

Ironically, less competition in the audit profession may actually improve the quality of their output. Auditors should become professionals again rather than companies selling an audit opinion. I’m afraid that more regulations will further deteriorate the quality of an audit opinion. It’s like the saying: the operation (audit) was successful but the patient (company) died.

Applying fixed reimbursement rates for auditors – like doctors – would remove competition on prices. Once price becomes non-negotiable, clients of auditors would then strive for getting the best service. Auditors would then need to compete on service. Society as a whole may benefit.

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