What is the point of an audit?

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The FT has reported that:

The City regulator is holding talks with top auditors to try to ensure banks are not destabilised by accountants making a qualified judgement in annual accounts on their capacity to continue as a going concern.

The talks come amid fears that auditors could qualify the accounts of big banks because of uncertainties around their funding and their dependence on government money.

The Financial Services Authority has held two meetings with representatives from the top six accounting firms to discuss key issues, including how it can help to avoid any problems with the audit opinions.

This is an astonishing admission: the requirement that an audit of a bank has to deliver a clean report is tantamount to saying the audit has no meaning in one sense. The possibility of failure is inherent in the audit process, or at least it should have been.

Of course it could be argued that the power of the audit is in the fact that the talks are being held.

My concern is that this is not true. There seems to be little doubt that this is an FSA initiative, not an audit initiative. Auditors gave clean reports last year when it was very obvious they should not have done (Northern Rock was nationalised during last year's reporting season) and this year they're threatening to qualify when it is glaringly obvious that the banks are not going to be allowed to fail.

As a result the audit process is seen to be meaningless in both cases because in both it is a matter of the auditors protecting their own interests, not that of society. And that's why a change in the whole process is required.

The FSA need to give that issue urgent attention.