I want to talk to you today about characteristics of auditors that make them suitable to perform a service as critical to the economy as a financial statement audit. So first thing I would like to emphasize is that, I get a little squeamish when people say the audit industry. The reason I get a little squeamish is because I want you to realize that auditing is a profession. A profession differs from an ordinary business, or ordinary industries, in that, professions don't work only for their own interests, but that their devotion, their main allegiance, is directed towards non-commensurable or incommensurable goods. And I'll explain what I mean by that. But basically, in a nutshell, money can't buy you everything, right? When you're talking about incommensurable goods, you're talking about a profession like medicine that shouldn't...the doctors, you hope, are there for the patients welfare primarily and not just to make a buck. Now you might be more skeptical of some physicians, and you certainly may be skeptical of insurance companies, but you hope that the physician you're seeing, when you present with symptoms, is fundamentally concerned about your health. That's an incommensurable good. So the auditing profession is critical to the public trust in our financial reporting and our world's equity markets. It's especially critical, not only in first world countries, but in developing countries where trade does not commonly occur with low transactions costs because of a high level of distrust or high level of information asymmetry going back to the, so you want to buy a car lesson from earlier. So what is it that we expect out of auditors? Would I expect everyone who wants to get a business degree of any sort to want to be an auditor? No, not really, because some people want to go into business, fundamentally to make money. Period. Full stop. Now, most of us who enter the profession of auditing wants to do much more than that. I would say, most people who enter business these days wants to do more than just make money, they want to build a social good, to help the social welfare and so forth. But the auditing professional has that in spades. So the best auditors, in some sense, have what might be thought of as superpowers. They not only attain technical excellence in that they understand the accounting rules, generally accepted accounting principles, or international financial reporting standards. They understand the accounting, but they also understand the technical rules and pronouncements, the authoritative literature, and standards about auditing. But they also must engage in virtuous and altruistic behaviors, that is, the best auditors are not those who simply audit until the marginal revenue and marginal cost from your economics class equal one another. If the only thing they were doing was maximizing profit, that would be when they stop. But on certain engagements, what the auditor will have to do is audit until the costs, at least at the monetary level, exceed the benefits at the monetary level. Why? Well, because their first allegiance is to the public interest. Now, let's go back to the statement about incommensurable goods. I love this statement because it really emphasizes that there are some goods for which there's no other good that can fully compensate. I remember stories and you probably remember stories about how proverbs or childhood stories growing up, you can sell your integrity for a price, but that doesn't make you feel very good and it's very hard to recapture that integrity. Here's a very good example of an incommensurable good. One of the heroes, again in my opinion, of the infantile United States. This is Patrick Henry. He said, "Give me liberty, or give me death." He was trying to say, there are some things that are so important to me fundamentally that I'm not going to be bought out. I'm not going to be bribed. If you are bribed then the question is, if you're susceptible to being bribed, then we already know about your character. The only thing we don't know is how high of a price tag you have. I still believe that there are men and women in the world today who are just are not really willing to be bought. And if the audit profession can self-select those types of individuals and retain those types of individuals, you can bet that the audit profession will be rock solid and in turn, increase the confidence of investors and other users of financial statements in our capital market.
