Just As I Was Starting To Feel Less Nauseous…By Francine • Nov 9th, 2007 • Category: Deloitte
re: The Auditors has been feeling a little under the weather the last few days, and therefore less inclined to write. This morning, just as I was starting to feel a little better and ready for some warm oatmeal and apple juice, I saw this story in the Financial Times. It was enough to send me back to my bed.
This is so wrong in so many ways. Haven’t the auditors been using any judgement under the “rules based” system? If not… If they’ve only been “ticking the boxes” out of fear of litigation, that would explain a lot and will explain even more when we see the deluge of Sarbanes-Oxley 404 litigation that is down the road due to failures after clean opinions.
They’re also getting very good at throwing very specific legal terms like “safe harbor” into every interview. Must be the influence of the group of lawyers that defend them instead of the group of lawyers that sue them. Or maybe their lobbying organization is holding media training seminars.
It’s been my experience that one of the Achilles’ heels of the current audit firm model is this assumption, within the firms and by those who believe it’s brain surgery to memorize GAAP and regurgitate it in rote form during audits, of infallibility on the part of audit partners. Like the Pope, they want us to believe, without questioning, whatever they pronounce. Boy, do they hate anyone second-guessing them. Lawsuits, as well as interns and experienced hires, that question their decisions are greeted with utter disdain and incredulity.
How dare you?
Now they’re looking for this imperiousness to be codified in regulation, globally. My question is – Who has the nerve, the stature, the political will, the cojones to declare that, “The Emperors are wearing no clothes!”
Charles Schumer or Christopher Dodd? You must be joking! They’re signed, sealed and delivered, bought like Guernsey cows, mooing occasionally that something must be done, but most of the time batting their eyelashes at the firms in return for cash.
I nominate Patrick Fitzgerald to take on the Big 4.
They’ll never know what hit them.
Deloitte urges new guidelines
James Quigley, Deloitte’s chief executive, has called for regulators to draw up new guidelines for the auditing profession to fit in with an emerging “principles-based” approach so firms have a basis for defending themselves if they are sued for making mistakes.
The head of the accounting firm told the FT that the profession needed a framework that would provide a “safe harbour” as the US moves towards a more principles-based approach to auditing and away from “bright line rules”. The new approach would require a firm to use its professional judgement instead of strictly adhering to rules.
His comments reflect worries among auditors that the change in approach away from “box ticking” means auditors will need guidelines to fall back on if their decisions are challenged later.
…a broader dilemma for US policymakers as they consider the merits of adopting principles-based regulation for the whole financial services industry. Critics of such an approach point out that the current rules-based system has worked because participants know that if they follow the rules there is reasonable legal certainty that they can not be held liable for mistakes later.
Mr Quigley said that as the profession moved away from rules “someone’s going to need to exercise judgment to apply those principles”.
“If you want to then make that transition, you have to put in place a framework for actions that a preparer [company] or auditor can take – a layer of guidance that would sit on top of a set of principles-based standards.
“You could then start to build a base for defence if someone challenges your judgement,” he said.
Last week, the SEC’s committee – on which Mr Quigley sits – discussed the idea of a “professional judgement framework” that would provide companies and auditors with “comfort that the chances of being second-guessed have been sufficiently mitigated”.