In recent years, debate has intensified over the true role of the auditor (the external auditor). Is that role confined to independent oversight and to making sure the financial statements are sound, or is the auditor also required to offer practical solutions and ways out of the problems uncovered in the course of the audit?
This question is no longer merely an academic or professional debate; it has become a daily reality faced by external auditors in many markets, particularly in the Arab Gulf states, where the expectations that managements and stakeholders have of the auditor are growing, and the range of responsibilities placed on the auditor’s shoulders is widening, in a business environment marked by complexity and rapid change.
The fundamental role: guardian of trust in the markets
The International Standards on Auditing affirm that the auditor’s essential role lies in expressing an independent and impartial professional opinion on the fair presentation of the financial statements and the extent to which they comply with the adopted accounting standards. The auditor is one of the most important pillars of trust in the modern economy, as investors, lenders, regulators and stakeholders rely on the auditor’s professional opinion in making their economic decisions.
It is important to stress that responsibility for preparing the financial statements, and for designing and implementing internal control systems, rests primarily with management and the board of directors, whereas the external auditor’s role is confined to examining those statements and expressing an independent opinion on them. Accordingly, the auditor is not responsible for managing the company or for taking its operating or financial decisions. Any departure from this role may threaten the auditor’s independence and create a conflict of interest, which ultimately leads to a decline in trust in financial reports and in the markets as a whole.
The practical reality in Gulf companies
Clear as this professional framework is, the practical reality in many Gulf companies – particularly small, medium-sized and family companies – presents different challenges. In many cases, some finance departments lack sufficient technical expertise or specialised resources, which leads them to seek the auditor’s help not only in identifying problems, but in proposing appropriate solutions and accounting treatments so as to avoid qualifications or material observations in the audit report.
This is where the real dilemma arises: how can the auditor help the client professionally without becoming part of the decision-making process, or of the preparation of the financial statements that the auditor will later audit?
Digital transformation and the widening expectations of the auditor
The auditor’s role today is no longer confined to auditing traditional entries and documents; the auditor is now required to understand digital systems, analyse big data, assess cyber risks and review disclosures relating to governance and sustainability. Artificial intelligence and modern technologies have also helped to raise the ceiling of expectations of the external auditor, as stakeholders now look for broader insights that go beyond merely expressing an opinion on the financial statements. This rapid development has made the dividing line between oversight and advice more sensitive than at any time in the past.
The real danger: when independence erodes
The common denominator in most of the major financial scandals around the world was not a simple accounting error, but a gradual erosion of the auditor’s independence as a result of professional or commercial relationships that had become closer to partnership than to independent oversight.
The world has witnessed a number of prominent cases that prompted regulators to reconsider independence and governance requirements, most notably:
- In the Kingdom of Saudi Arabia, the regulatory authorities took strict measures in the case of the Mohammad Al-Mojil Group, which marked an important milestone in strengthening oversight of the quality of audit work.
- In the United Arab Emirates, the Abraaj Group case provoked wide debate about the responsibilities of external auditors and the importance of strict adherence to the International Standards on Auditing and to professional independence requirements.
- At the global level, the Enron, WorldCom and Wirecard cases remain among the most prominent examples that exposed the risks of overlapping roles between audit and advice, and the heavy losses for investors and the collapse of long-established institutions that may follow.
The Gulf regulatory environment
In recent years, the states of the Gulf Cooperation Council have seen marked development in their governance, oversight and disclosure systems, whether through capital markets authorities, central banks or other regulatory bodies. This development has reinforced the importance of the auditor’s independence as one of the fundamental pillars for protecting investors, achieving transparency and raising the efficiency of the financial markets and their attractiveness to local and foreign investment. With the growing focus on governance, risk management and sustainability, the auditor’s independence has become a strategic requirement and not merely a professional or regulatory obligation.
Where does the dividing line lie?
The solution lies in striking a fine balance between the demands of business and the duties of the profession, through:
- The auditor’s fundamental role remaining an independent oversight and assurance role.
- The possibility of offering general recommendations and professional observations to improve systems and internal control, without taking part in implementation or decision-making.
- A clear separation between audit services and advisory services, in line with professional standards.
- Strict adherence to the independence requirements issued by the International Ethics Standards Board for Accountants (IESBA) and to local regulations.
- Strengthening the role of audit committees and boards of directors in assuming their oversight responsibilities, and not burdening the auditor with executive tasks that fall outside the scope of the auditor’s work.
Conclusion
The strength of financial markets is not measured by the number of listed companies or the volume of trading alone, but by the degree of trust in published financial information. And the auditor’s independence remains the cornerstone of that trust. The closer the auditor moves to the role of management, the further the auditor moves from the true professional role; and the more the auditor preserves that independence, the more the auditor strengthens the credibility of financial reports and protects investors and the economy alike.
The real challenge, therefore, lies not in choosing an auditor who pleases management, but in choosing an auditor who has the professional courage to tell the truth when circumstances require it.
And the question remains:
Do we want an exacting auditor who protects the market, or a comfortable auditor who pleases management? The answer to this question will determine the level of trust in our financial markets and the future of the business environment in the region for many years to come.