Happy 2010! So Much To Talk About…

By • Jan 3rd, 2010 • Category: Latest, Pure Content, Where I've Been

Time to get back in the game after a fairly quiet, low-key holiday period.  However, much has been going on behind the scenes at re: The Auditors HQ. You may notice a slightly different feel to the design and I’ve removed the ads from the front page.  The affiliate ads were an experiment and our audience just does not click and buy anything from this sort of website.  Perhaps it’s not the right forum however well I tried to target the ads.

I am actively seeking more sponsors like my oldest and dearest, Roger CPA Review.  (Email me if you are interested and I can send a media kit with all my stats.) Thanks to Roger and his gang for all of their support.  Even if you are already a CPA, their blog and site are worth checking out.  Heck, why not take the exam all over again just for kicks!

Perhaps the lack of success with some types of ads (The Google Adsense ones at bottom of post are fairly successful..) is due to the email phenomenon I discussed with Professor Dave Albrecht on New Year’s Day. Professor Albrecht was passing through from visiting family and heading back to Concordia College where he teaches accounting.  (Take a look at his Top 10 posts for 2009, when you get a moment…)  We spent about four hours in the Starbucks near my new digs – I also moved house over the holidays – talking about all sorts of things, including some things we may collaborate on.  We also talked about how email still rules in our world.

Many people click on this site from their office networks, while at work.  The folks that read what I write are still fairly traditional and most separate worklife and homelife.  Although I know lots of accounting and legal professionals who are online 24/7, I have to keep remembering that they are not typical in the grand scheme of things, just yet.  Many, many of you receive new posts via email and only visit the site if the post interests you.

I’ve been encouraged to compile a summary of weekly or bi-weekly highlights in an email newsletter with some bonus tracks to capitalize on this still predominant email tradition. What do you think of that? It’s still the fastest, easiest form of content delivery for many.

I also corresponded over the holiday with Edith Orenstein over at the FEI Blog.  She is my rock and often my technical salvation.   She complied a pretty extensive Top 10 list, reminding me of Roger Ebert’s list of his favorite films of the decade and the ten best films of the decade.  Two different things, I agree.

And I had the good fortune last week to talk with the former Fortune writer, now Vanity Fair staffer, who is most famous for her role as the journalist who broke the Enron story. Bethany McLean is as smart and savvy in real life as you can imagine.

Jim Peterson compiled the top responses to our posts about the future of the audit firms, given their minimal role in preventing, warning, mitigating, or supporting the development of solutions to the financial crisis.

To greet the new year, instead of a backwards look at a dreary 2009, this will revisit last month’s lively exchange, initiated by Francine McKenna’s provocative post of December 7, “They Weren’t There: Auditors and the Financial Crisis.” My response of December 13 is here, and hers of the 14th is here.

Highly compressed, the gist of our mutual concern is, as Francine put it, “the auditors’ failure to be a force either before, during, or after the financial crisis.” The depressing explanation, said I, is that “their core product has long since been judged irrelevant. The standard auditor’s report is an anachronism – having lost any value it may once have had, except for legally-required compliance.”

It’s a great read and saves me from repeating myself in the comments here.

;)

Finally, I was inspired to create an entry for the Davos Debates competition.  YouTube and the World Economic Forum are opening the doors to Davos to provide unique access for an individual to elevate a worthy and important cause. The Davos Debates’ are an opportunity to engage and debate with the world’s leaders, and join them on stage for a special panel to help pitch your cause to the world. I took my first real shot at creating a video, of only three minutes no less, to make my case for being selected.

At this point it’s up on You Tube and hopefully will get submitted before the deadline Monday.  I apologize in advance for the poor sound quality.  And I’m not as lively or animated as I am in real life.  It was a one-girl production using only my MacBook and tools available there.  I promise I will get better.  I’ve put the video here for you and reprinted the text of my pitch below to aid in your comprehension.

Many great posts in the hopper, including a Satyam update, more on the AIG/PwC/GS ménage à trois, and some new info on a very bad trend in internal audit co-sourcing. Stay tuned to this channel!

My name is Francine McKenna and I am the Managing Editor of a specialized news site, re: The Auditors, the only place you’ll find original reporting and analysis on the business of the Big 4 audit firms and the public accounting industry.

When each of the notorious “financial crisis” institutions collapsed, were bailed out, nationalized, or rescued by so-called “healthier” institutions, they carried in their wallets non-qualified, clean audit opinions. If only the Big 4 global audit firms – Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers – had told us these banks were technically insolvent or essentially illiquid.

The auditors have 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 into a full blown systemic financial crisis. But the auditors never stepped up to perform their oversight role.

The auditors should have been where the buck stopped. We know now that regulators were often underfunded, understaffed and potentially biased against protecting the average shareholder. But the audit firms are appointed as shareholders’ first line of defense. They benefit from a government-sponsored franchise, but their role is to be gatekeepers, watchdogs, and shareholder advocates. This is their public duty.

The Big 4 auditors have combined global revenues of more than $100 billion dollars and employ hundreds of thousands of people. They’re probably not totally corrupt, but they are demonstrably self-interested and no longer singularly focused on their public duty. When accused of negligence, malpractice or complicity, they claim to have been “duped” and that global networks have no control over member firms.

Arthur Andersen failed because the firm was a repeat offender, an incorrigible, profit seeking, “corporate” type that finally, with Enron, strained the last nerve of the US Department of Justice. A primary goal of Sarbanes-Oxley was to restore confidence in the audit profession. But we gained an insidious byproduct – the “too few to fail” policy that prohibits any other large accounting firm from failing.

My first job was as an internal auditor at Continental Illinois National Bank And Trust Company, the original “too big to fail” bank. The “too few to fail” policy for audit firms has been no more successful in protecting shareholders and restoring confidence than the “too big to fail” policy for the financial institutions. Every one of the audit firms is defending against a bucketful of lawsuits for audits of financial institutions that failed, were taken over, or bailed out, in addition to the various malpractice, fraud and Madoff-related lawsuits. Any one of these matters may threaten the viability of any one of the audit firms. Regulators, and the worldwide business community, are woefully unprepared to address this threat.

I hope that by participating in Davos, I can bring the role and responsibility of the public accounting firms – that is, their public duty to shareholders – back into the discussion on improving transparency and accountability of capital markets and financial institutions.

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3 Responses »

  1. […] Deloitte has abdicated its public duty. […]

  2. Hi Francine,

    Thanks for the sweet tweet about my Top Ten Accounting Blog Posts List.

    And, I’m glad you shared your Davos Debates video application with us. I would love to see you be accepted.

    But, most especially, in your crusade to correct the imbalances left in this world due to the out of control “Big Four” Auditors and the world of public accounting, I would love to see you jump on the bandwagon to change two fundamental issues with respect to the public auditors and the investing public and government’s expectations of an independent audit from the auditors.

    1) The auditors should not be paid by the auditees. The conflicts of interest caused by this one issue are infinite.

    2) The auditors should not be selected and managed by the audit target’s executives and board of directors. After all, it is the executives’ self-prepared financial reports about their own performance that is being audited in the first place.

    Not fixing these two fundamental flaws in the existing system will only ensure we continue be foolhardedly disappointed at the lack of objective audits, and that one financial crisis after another continues to plague our U.S. and global economies.

    Thanks for all you are doing to make a difference in the world, Francine! You’re an inspiration to us all.

    Ciao for Now,

    Sara McIntosh

  3. […] This post was mentioned on Twitter by Francine McKenna, Bill W. IHRIG. Bill W. IHRIG said: Happy 2010! So Much To Talk About… http://j.mp/eJqxkL via @AddToAny […]

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