The auditor as historian: Reflections of the epistemology of financial reporting

Abstract

Concern has been growing recently that the modern commercial organisation is becoming less auditable. The volume and complexity of transactions and the opacity of computer-based information systems, coupled with the increased knowledge gap between auditors and clients, make the auditor reliant on evidence whose quality and reliability is open to broad challenges. At the same time, the changing nature of financial reports, from summaries of the past to images of the present and windows on the future, weakens the link between evidence of underlying activities and transactions and their representation in financial statements. This exacerbates the epistemological challenge faced by accountants and auditors: how can financial statements be said to be a faithful representation of an entity, and how can auditors give a well-grounded opinion that the financial statements give a true and fair view? These issues are by no means unique to financial reporting. Similar problems arise in historical research, where historical theorists and practical historians have had to grapple with the nature and status of evidence of the past and the relationship between evidence and historical narratives. By examining contemporary debates within the literature of historiography,insights into comparable issues within financial reporting and auditing should be gained. The paper concentrates in particular on the contribution to the historiographical debate made by Keith Jenkins. Through his books Re-thinking History (1991), On “What is History?” (1995) and Why History? Ethics and Postmodernity (1999), and his edited collection The Postmodern History Reader (1997), Jenkins has provocatively challenged more mainstream views of the historian’s relationship with evidence, indeed the nature of historical evidence itself, in ways that raise issues for the conventional understanding of evidence in the audit context. The arguments of Jenkins are contrasted with those of C. Behan McCullagh, whose The Truth of History (1998) explicitly explores the extent to which historical descriptions can be “true and fair”, and thus provides a direct analogy between the task of the historian and that of the auditor. The paper concludes that auditing stands or falls in an epistemological sense with history, in that the statements of auditors bear essentially the same relationship to audit evidence as those of historians bear to historical evidence. If, in a postmodern world,histories that claim to tell a unique “truth” are not just logically impossible but also ethically immoral, then so are financial statements and audit reports.