Recent corporate setbacks have put the major audit firms in the spotlight. Aside from clear cases of collusion, the financial statements checks they carry out are meant to certify that the accounts have been properly kept. But does that make them the ultimate guarantors of a company’s health and long-term viability?
The auditor’s report is used to confirm that the accounts are in good order. It states, in its wording: « According to our assessment, the accounting records and the annual financial statements … comply with Swiss law and the company’s articles of association ». Its opinion should therefore help reassure stakeholders about the accuracy of the figures presented. But caution is warranted: these are the accounts for the year just ended, not for the future. We live in an era of extremely rapid change, and what was true yesterday will not necessarily remain true tomorrow. Investments can therefore suddenly be worth far less than the price paid for them, whether industrial fixed assets or, even more so, equity stakes. Moreover, even if the substance of the assets is preserved, yesterday’s profits are by no means a guarantee of tomorrow’s. The auditor provides no opinion on budgets and is not tasked with ruling on the company’s strategy. That responsibility lies with the board of directors, or even the shareholders, and its assessment by an independent body is not usually предусмотрено. Yet nothing prevents a company from occasionally asking a third party to carry out a diagnosis, like a medical check-up.
There is indeed a time lag between a poor strategic decision and its impact on the accounts. By then, it may already be too late to act. It is therefore essential to identify the early signs of a drift soon enough to correct the course while there is still time. More often than not, these warning signs do not initially appear in financial terms. At that stage, they may therefore be imperceptible to the auditor when reviewing the annual accounts. And even if the auditor were to have doubts about the company’s strategy, those concerns can only be raised once their impact has been reflected in the accounts. It is, in other words, an “after the accident” view.
Beyond a one-off corporate diagnosis requested from a neutral third party, other internal measures should also help prevent drift. Much is said about corporate governance. This term refers to the set of principles which, while preserving decision-making capacity and efficiency, aims to establish at the top of the company a balanced relationship between management and control functions, under a framework of transparency. Their implementation should in particular prevent decision-making being dominated by a single powerful individual, the passivity of certain corporate bodies or the weakness of a board of directors.
