Having dealt with several of the top global audit firms and found them very good at just checking the boxes, it comes as no surprise to me that the latest report of the Association of Certified Fraud Examiners on workplace fraud detection finds that auditors uncover wrongdoing only 3 per cent of the time.
’ Audit firms argue that company executives are responsible for the accuracy of financial statements and that the role of an auditor role is only to provide ‘reasonable assurance’ — not a guarantee — that a financial statement is free from material misstatement.
It is an argument that has prompted the US Securities and Exchange Commission’s chief accountant, Paul Munter, to exclaim to me on more than one occasion that he is fed up hearing from auditors what they do not do.’
’ In the US, the Public Company Accounting Oversight Board is revamping rules on how auditors must look for and deal with evidence of a client’s non-compliance with laws and regulations (Noclar, in the jargon). The intent is to force auditors to cast a wider net for matters that could have a material effect on a company’s financials, even indirectly by leading to big fines or regulatory action that threatens the business.
Audit firms have responded that they cannot be expected to make legal judgments, and that the huge amount of extra work implied by the Noclar proposal as currently drafted probably will not uncover anything significant that current procedures do not already.’
Thanks Goofy - perhaps there’s more to it - e.g. regulatory arbitrage. Companies are forced to pay for audits simply because regulators mandate it. That gives auditors a blank check to just go through the motions with impunity considering neither shareholders nor regulators will know the difference 9 times out of 10
Also, there’s the “materiality” criterion - if, in the auditor’s opinion, a problem doesn’t have material impact on the client’s books, it doesn’t need to be highlighted.
Naturally, what is ‘material’ is going be a cosy discussion with the client’s head honcho over a nice dinner etc. where the ‘strategic partnership’ will hold sway
hmmm, sounds like auditors are about as useful as the bond rating agencies. I’ve always gotten a kick out of how much money is lavished onto CEO’s, the payscale justified by how tuned in they are to the company, and the markets, and anything else needed to justify paying them that much. But when a firm is investigated for legal wrongdoing, the A1A defense for the Corporate Suite is " how could we possibly know everything that is going on with our company".
The auditors, bond agencies, BOD and CEO’s are all in this together,lol, and shareholders and everybody else are not in that exclusive club.
I miss Mark Haines. When word got out that Robert Rubin had tried to twist arms to not downgrade Enron debt, Mark, in fake wide-eye innocence, said “gee, I didn’t know credit ratings were negotiable”
Rubin joined Citigroup in 1999 as chairman of the executive committee of the board. Enron, a major client of Citigroup, faced a credit ratings downgrade as a result of the Enron scandal. Rubin called a ranking Treasury Department official, unsuccessfully seeking the Bush Administration’s help in forestalling the downgrade
That is why corporations want politicians on their BoD. Corrupt practices that would land CEOs in prison only 25 years ago, are now winked at. At most, a “rogue underling” might do time, but no-one touches “JCs” anymore.
