Who is an Auditor

There has been a lot of frustration in the diamond accounting profession over the last few weeks iver the accounting and auditing for this year’s profile submission.

Part E to the Notes to the Sightholder Profile on Financial Accountability states:

“There is no requirement for financial statements to be audited to IFRS standards.  Financial statements may be audited either to national GAAP or to IFRS.”

Something does not make sense here.  GAAP and IFRS are accounting standards which accountants use to prepare the financial statements while auditors work according to auditing standards and regulations.

To draw a parallel with our industry, diamond polishers prepare the stones according to the standards and specifications of the cuts they manufacture. A bit like accountants who prepare financial statements according to GAAP or IFRS.  The grading laboratories examine and certify what the stone is, like the auditors who examine and give an opinion on the financial statements.  Just as there is local GAAP and IFRS, there are local auditing standards and regulations and international auditing standards.  As there are no auditors who audit to GAAP or IFRS, technically, all sightholder financial statements will be disqualified for not complying with this requirement. 

And there is confusion in the definition of an auditor, who, according to the footnote, has to be “demonstrably qualified and independent individual.”  In the UK for example, and auditor can be qualified to audit, but if he does not have an audit license, he must not sign on an audit report.  The auditor, also according to the footnote, cannot be a partner in a firm as he has to be an “individual.” Either an auditor, like a diamond, is certified or he isn’t, so what does “demonstrably’ mean?

But it gets better.  Earlier this month, brokers received written guidance from the DTC concerning, inter alia, the presentation of 2005 data, whether it had to be audited or restated if there were acquisitions or disposals.  On the basis of this guidance the brokers instructed their clients. Then a few days later, the questions and answers were published in the DTC Extranet, and the answers contradicted the written guidance received a few days earlier infuriating, unnecessarily, both the clients and the brokers.

All of the major stock exchanges of the world require audited financial information with comparative figures.  After consultation, their requirements are published months in advance of the submission deadlines.  The diamond industry should, like quoted companies, now be receiving the audit and reporting requirements for 2007/8, not 2005/6.

Instead of confusing small fonted footnotes, would it not be much more elegant and effective to write in the main text:

“The financial statements must be prepared with prior year information, according to IFRS or the GAAP of its jurisdiction.  The auditor, whether a sole practitioner or a firm, must be legally authorised to sign on an audit report in his jurisdiction and must audit in accordance with local or international audit standards and regulations”

Is Socrates ranting against the diamond industry’s Zeus, or is there a more fundamental issue here?  There are a few more irregularities in the DTC Notes, but it is ironic that while SoC 2 is emphasising future plans, the DTC is two years behind in its accounting requirements.

socrates@diamondfinance.info