Financial Reporting: Control Over Auditors in the Mirror of Hermeneutics

The reliability of financial reporting is based on the audit institution, which means it depends on the current state of it. What do the facts say? In 2024, one of the largest Russian audit firms was deprived of the right to conduct audits of socially important organizations. Sometime earlier, during a series of bankruptcies of a number of large Russian banks, the Bank of Russia discovered huge «holes» in their balance sheets, about which there was no information either in the financial statements of these organizations or in the audit reports prepared on them (including by audit firms in the top ten in terms of volume of services provided). All this indicates that this institute is not in the best situation. In this regard, the following questions legitimately arise. Are the mechanisms for monitoring its activities in place? Are the procedures developed in this area adequate to the theoretical concepts and provisions on which they are based? This article is devoted to answering these questions. The object of research is one of the bodies performing control and supervisory functions, and the subject is the tool used to increase the reliability of financial reporting in terms of control over auditing activities. To achieve this goal, the article proposes to use an approach developed within hermeneutics (the method of hermeneutic analysis). Its use made it possible to identify a number of contradictions in the methodology for assessing risks and planning external audits of the activities of audit organizations, contained in one of the basic regulatory documents in this area. The basis of these contradictions, as shown in the article, is an unacceptable combination of elements of a one- and two-factor risk assessment model, allowed by the developers of this regulatory act. The suggested methods for addressing these contradictions enhance both the reliability of the methodology’s results and its clarity for all stakeholders involved. They also make it possible to resolve a number of problems revealed during the recent heated debate in the audit community about the effectiveness of the existing system of regulation of auditing activities as an institution for improving the quality of financial reporting.

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