Comments on: The Big 4 And The Ratings Agencies – A Self-Fulfilling Prophecy?

By: re: The Auditors » Blog Archive » Auditor Musical Chairs At Moody’s

Tue, 09 Aug 2011 16:32:48 +0000

[...] noted in my previous post, the relationships between the rating agencies, monoline providers and Big 4 are tight. As we know, [...]

By: McKenna: Ten things you should know about ‘Big Four’ audit firms | Ian Fraser

Tue, 28 Dec 2010 15:10:24 +0000

[...] 5. The auditors have a lock on the business. Case in point? Ratings agencies. Both ratings agencies and audit firms have a governmental mandate to provide a legally-required service. Both are paid by the clients they rate. And both repeatedly disappoint and even defraud the investing public. They aren’t in bed together, but they willingly endure sleeping with the enemy. [...]

By: The SEC as Passover’s Fourth Son | gv

The SEC as Passover’s Fourth Son | gv — Tue, 21 Dec 2010 19:54:24 +0000

[...] http://retheauditors.com/2008/02/21/the-big-4-and-the-ratings-agencies-a-self-fulfilling-prophecy/ [...]

By: re: The Auditors » Blog Archive » Top Ten Things Lawyers Should Know About Auditors

Wed, 15 Sep 2010 18:46:02 +0000

[...] 5. The auditors have a lock on the business (read, “ratings agencies”). Case in point? Ratings agencies. Both ratings agencies and audit firms have a governmental mandate to provide a legally required service. Both are paid by the clients they rate. And both repeatedly disappoint and even defraud the investing public. They aren’t in bed together, but they willingly endure sleeping with the enemy. [...]

By: re: The Auditors » Blog Archive » With Cassano Off The Hook, Where Does PwC Hide In The AIG Case?

Tue, 27 Jul 2010 16:05:32 +0000

[...] as auditor also of JP Morgan, Bank of America, Barclays, Freddie Mac, PIMCO funds, and two of the Big 3 ratings agencies – Moody’s (until mid-2008) and Fitch – had a pretty good eye into AIG’s [...]

By: re: The Auditors » Blog Archive » They Weren’t There: Auditors And The Financial Crisis

Mon, 07 Dec 2009 23:42:57 +0000

[...] all along. They’ve been riding sidesaddle, cantering obediently a few strides behind the investment banks, mortgage originators, commercial banks, ratings agencies, and monoline insurers who made the real estate bubble and, therefore, the CDO/CDS/MBS bubble what it was. On the other [...]

By: Independent Accountant

Independent Accountant — Fri, 29 Feb 2008 13:59:00 +0000

Anonyomous:
The issue may be sample sizes, as I have seen small samples used to avoid finding anything wrong. Or the issue may be partner “tick nd tie” mentality and failure to understand the economics of what is going on. I’ve seen both. So? The Big Four do some “decent work”. So? A stopped clock is right twice a day. So?

By: Anonymous

Anonymous — Mon, 25 Feb 2008 17:13:00 +0000

Independent Accountant – you certainly sound very professional and high and mighty. The reality is that Big 4 Firms do decent work, and there is so much more that tick and tie. Perhaps your experience was/is different.

Frankly, I’m not sure if that even matters. As a professional auditor, I know my limitations, and I’m not afraid to state that the AIG audit would be way over my head. Unless I had my entire team compromised of seasoned financial institution partners, I would unwilling to sign the opinion based on a traditional audit team that has a leverage model of maybe 20% partner time and 60% staff time. I really believe that if you were reasonable and thoughtful, you will feel the same way.

The issue is not about sample size, especially for financial institutions – if you believe that, then you either are not a Big 4 Partner or you did not take stat class in college. My friends, the real issue is all about the critical accounting policies and significant management judgments. Staff people don’t audit signifcant audit judgments – but they are good at doing the monkey check lists and “ticking and tying”. Only seasoned and industry qualified partners can audit the judgments, and more importantly, actually IDENTIFY where the judgments exist. And, I’m telling you, there are just noot enough Big 4 Partners out there to do this. Therefore, the only answer is for the Big 4 to withdraw from such risky and uncertain audits.

Final Four Guy

By: Anonymous

Anonymous — Mon, 25 Feb 2008 05:02:00 +0000

Francine, I find it interesting that half the time you are complaining about how the small number of major accounting firms makes it nearly impossible for large companies to have true choice in who audits them, but then the other half the time, you are calling for all out legal attacks on accounting firms no matter how minor their complicity or what their actual duty is. This, despite the fact that the lawsuits you so vehemently believe in, in conjunction with the enormous damages you think are just, would further shrink the accounting industry. You can’t have it both ways. With that said, what do you propose as a solution to these seemingly incongruous goals? Would you like to see the large audit firms split up like Bell or Standard Oil?

By: Francine McKenna

Francine McKenna — Sat, 23 Feb 2008 23:19:00 +0000

Actually I think “Tone at the Top” is a very powerful concept, but one that has little meaning if the external auditors (and the internal auditors)are not willing to go to the mat.

Here’s a really good speech by Stephen Cutler, Director of Enforcement at the SEC in 2004, about practical application of this concept.
http://www.sec.gov/news/speech/spch120304smc.htm

Unfortunately, as you mentioned, external auditors are afraid of losing the client and internal auditors are afraid of losing their jobs and ability to get another job. That’s why in so few situations does this concept get tested other than by plaintiff’s lawyers in securities litigation.