Let umbrella organizations appoint and pay auditors

On March 29, 2019, Prof Dr Henk Langendijk said goodbye as a professor at Nyenrode Business University. In Nyenrode’s Pfizer room, he delivered his farewell speech titled: ‘The (un)true and fair view of the annual financial statements and the position of the auditor.’ His most important advice is to have auditors appointed and paid by umbrella organizations in order to create more impartiality.

Langendijk argues that not all annual financial statements are accurate by any means. The auditor plays a key role in this. In his speech, Langendijk focused on the definition of accounting scandals. He discussed the types of mistakes that are made concerning annual financial statements, such as depreciation errors and incorrect recording of company profits, followed by the condemnation of these mistakes and, lastly, the architecture of the auditing world.

Accounting scandals

Langendijk states that there are many accounting scandals. These accounting scandals are undesirable and lead to social and political discontent. An auditor can prevent or reduce this by performing correct audits. According to Langendijk, the measures which are currently being taken to prevent accounting scandals – error correction with numerous rules and various committees – are not the solution: ‘Auditors and supervisors prefer not to admit that they have made a mistake, and errors are rarely attributed to any specific person.’ As a consequence, Langendijk says, this has given rise to error correction measures: lots of rules and ‘countless committees’. He believes that with the current architecture of the auditing sector, these scandals will not decrease in number.

Umbrella organization

Langendijk has several suggestions to address and prevent errors. The most important suggestion: have an industry-based umbrella organization appoint and pay auditors. This will ensure that an auditor is impartial. According to Langendijk, ‘the current situation is actually bizarre: the auditor is paid by the organization which he or she is auditing. Auditors use terms like ‘the client’ when referring to these organizations.’ Langendijk thinks that ‘the auditee’ is more appropriate.

Workload

Another suggestion that Langendijk offers is to reduce the time pressure and budgetary constraints associated with audits. ‘This will make the auditing profession more attractive. You can do so by hiring more people and retaining employees, even if they don’t have ambitions for further growth. This nevertheless remains a difficult topic to discuss in the auditing sector, since it undermines auditors’ current earnings model.’

Henk Langendijk has been affiliated with Nyenrode through NIVRA-Nyenrode since 1994 and has served as a professor of Financial Accounting and Reporting since 1997. Langendijk earned his Master in Business Economics from the University of Amsterdam. He received his doctorate from Leiden University in 1994.
Until recently, Langendijk worked as a professor of Financial Accounting at the University of Amsterdam alongside his position at Nyenrode. He is editor of the Maandblad Accountancy en Bedrijfseconomie (Monthly Journal of Accountancy and Business Economics, MAB) and also works as a consultant in the area of financial reporting.