79: Warren Buffett's Advice For A Clean Audit
Buffett has some suggestions for how a company's audit committee can ensure better financial statements.
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Buffett: Auditors Should Be Afraid
Warren Buffett had some advice for audit committees following the accounting scandals of the early 2000s. Many of these stemmed from the fact that auditors got too cozy with management and didn’t do their jobs appropriately.
In this video, Buffett explains the four questions he thinks audit committees should ask auditors. As a bonus, he did this with BRK and shares the answers the board received.
Summarizing, the four questions are:
Would the auditor have prepared the statements differently than management?
Could the average person understand in plain English all necessary information?
Would the company follow a different internal audit procedure if s/he were CEO?
Is the auditor aware of any accounting or operational actions that shifted income or expense into another reporting period?
These questions not only illuminate the audit process but put the auditors on notice that the audit committee is paying attention and reminds them that the auditors work for the board, not management.
Stay rational! —Adam
