THE accounting scandal at Tesco, the United Kingdom's biggest retailer, has entered a sinister stage. It is suggested that senior management deliberately misled the auditors over accounting for income from suppliers. The size of the problem has also increased - the "error" now amounting to more than £250 million (S$508 million) in one six-month period and the possibility that it goes back to several previous years.

We won't know much more about it for a few months as it has become a criminal investigation by the Serious Fraud Office and is sub judice. This suggestion is the auditor's worst nightmare. No matter how reputable the company, however good your tests are and how well you understand the business, your audit is subject to manipulation by determined management.

The audit profession has always been dogged by the question - are you a watchdog or a bloodhound? To what extent can you rely on the quality of internal controls and systems, including the probity of management?