How Auditors Find Their Footing in the Indigenous World

In First Nations, Métis, or Inuit communities, independent auditors learn to “decouple” professional standards from on-the-ground practice
How Auditors Find Their Footing in the Indigenous World

The essentials

  • Independent auditors face significant challenges to completing an audit for a First Nations, Metis, or Inuit group. Challenges include the logistics of working in remote areas; lack of on-the-ground expertise to prepare proper financial reports; and culture shock.
  • Auditors adapt by reshaping their mindset and focusing on the needs of the communities; helping with some the accounting tasks; and re-evaluating the importance of requests for additional information.

Financial accounting is a sore spot for indigenous communities. It is widely perceived as a tool of control and exploitation by government authorities and a source of inherent conflict, since accounting principles are based on Western rather than indigenous values.

On the other hand, funding agreements require these communities to provide the federal government with financial information. The First Nations Financial Transparency Act, for example, adopted in 2013, requires that 581 First Nations bands publish their audited consolidated financial statements and a Schedule of Remuneration and Expenses on a public website.

To help indigenous communities meet these requirements, accounting firms have developed profitable lines of service. But undertaking an audit of a First Nations, Métis, or Inuit community for the federal government is much more complicated than conventional audits, burdened as it is by a history of colonialism.

Independent auditors are often caught between a rock and a hard place. For them, “there are paradoxes and contradictions,” says Laurence Daoust, a PhD candidate at Smith School of Business and certified public accountant. “There are professional agendas and community needs on one side versus political agendas and national priorities and reporting needs of programs.”

Studying Auditors at Work

Daoust teamed up with fellow PhD student Oriane Couchoux and Bertrand Malsch, an associate professor at Smith School of Business, to examine the challenges that auditors encounter when they work in indigenous communities and how they respond.

The researchers spent more than 100 hours observing two audit teams at work in these communities. They also conducted 16 interviews with auditors from three firms and with seven community members working for bands or band entities. Daoust reported on the team’s research at a symposium organized by the Centre for Social Impact.

Professionals face significant challenges to completing an audit for a First Nations, Metis, or Inuit group based on the established standards and procedures of the trade, Daoust says. For one, there are logistical pressures: the communities are located in remote areas and the auditors are on site for only brief periods.

There are also what Daoust terms “educational pressures.” Given the small size of the communities, band employees often lack financial expertise to produce the required financial information or to address complex questions, which forces auditors to spend time providing accounting assistance.

Cultural pressures are significant as well. Non-indigenous auditors can experience culture shock working in a First Nations, Métis, or Inuit community, Daoust says. “Indigenous peoples and auditors may not have the same perspective on work and priorities,” she says. “Auditors work in stressful environments with a culture focused on performance. Indigenous communities are collectivist. They place importance of land, sovereignty, and language.”

How Auditors Adapt

How do auditors respond to these challenges and meet the requirements of the government? More often than not, Daoust says, “auditors decouple their practices from auditing standards to adapt to the context and reach goals that they consider more meaningful than simply ‘auditing the books.’”

They do this in three ways. First, the researchers note, auditors reshape their mindset and focus on the needs of the communities. They change the focus of the audit to take into account community needs and change the way some misstatements are handled. They may show greater patience and correct small errors made by band employees preparing financial reports.

Second, they embody different roles and help out with some of the accounting tasks, which normally they would avoid in order to maintain their independence. The auditors may train their clients, search for documents themselves, or re-allocate expenses to their proper projects or funds.

And third, they question the usefulness of the financial statements for the government and the indigenous communities. They may re-evaluate the importance of requests for additional information, says Daoust, acknowledge unanswered questions, and “sign off anyway.”

“I don’t take it too seriously. . . I try to do it the best I can but we know . . . there’s going to be so many unanswered questions that we are just going to let it go and sign the report”

As one auditor told the researchers: “I don’t take it too seriously. I do my job, I try to do it the best I can but we know that, at the end of July, there’s going to be so many unanswered questions that we are just going to let it go and sign the report.”

Given these findings, Daoust wonders whether auditing standards should be adapted to the context of indigenous communities. What can be done to reduce their dependency on outside consultants? Should accountants’ role with indigenous communities be changed to become more meaningful?

“Financial reporting has a ceremonial aspect,” Daoust says. “Helping communities to allocate expenses to the proper funds and to improve accounting information seems more important than actually reporting the information to the government.”

Alan Morantz

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