PS on risk based discussion here i would hold that any time you do not physically observe firsthand the event or transaction any thing else designed to do less, statisitcal sampling for example, the real RISK is “will you miss something ?” it never made sense to me anyway that calculating materiality to explain away additional testing could be relied upon if you dont know the value of all the missing pieces

moreover i can see one year or so audit results being deficient with the benefit of hindsight but if an audit firm has five or eight years of consecutive audit procedures experience on any client it is IMPOSSIBLE for any surprises to exist on issues that have been in question during that period IF the audit has been performed adequately

with this compiled experience and insight to the client then the “engineer” can build an efficient bridge using reduced resources to pinpoint and focus on material valuation and recognition issues

my guess is that the same way the SEC was deficient and sitting on its hands so were the audit firms relying more on confusing words and contradicting positions to avoid being sued rather than any real testing and inquiry and meaningful attestations – everyone was drinking from the same punchbowl

but i do appreciate why someone would want to defend their position but i think the size and scope and quantity of major AUDIT FAILURES indicate the industry foundation was rotten to the core and the entire structure, regardless of the words used to explain it away, was simply a co-conspirator willingly aiding and abetting in the mud – or else there would have been mass employee defections from the audit firms

otherwise one is just looking for a new excuse to explain the defect as to be expected

anyway thats all i need to say

frankD

Look what is happening to Goldman today. Where were these iinquiries 1 year ago?

While the attention value is to get philosophical about Lehman, Goldman was pulling the
roe chambeau right in front of everyone.

in regard to your statement, “sounds like you are more of the problem than the solution”, yes i agree – that is why i quit – my example merely was to illustrate how easy it is, however, now the compensation amounts are astronomical so it isn’t as easy today as it was for me to walk away but i saw then that the whole financial industry game was probably rigged

and yes, the partner at the firm may be the problem, for excample as at arthur andersen partner on enron, so of course the staff needs to either play that part or part company and people making good money will have a difficult time quitting

so today you have one lying (the client) and the other swearing to it (the auditor) – so my bigger point is the auditor has become part of the problem and the entire financial excercise completely irrelevant

some say the only reason auditors are used today is so duped investors have another entity to sue for recovery and clients do “shop” audit firms and so you see the liars and cheats become the rainmakers and that gives them the cover they need and round and round the circus travels

not that this sentiment didnt exist back in my day but it was limited to pink sheet entities publicly traded and audited but known to be bogus totally at the other end of the spectrum of the blue chip entities – but even back then it was all considered prostitution only that some operated from the penthouse and others operating from the outhouse and all others somewhere in between

the whole thing is gambling and thereby gaming the system is the idea of the entire industry foundation – and the auditors either go along to get along or will be replaced by some other rating procedure

it’s easier today to find an honest afgan police officer

anyway be well

frankD

A more apprpriate analogy is that if you are 95% certain that there is no material misstatement in the financial statements, and you need to do triple your sample to get to 99%, is it worth doing so? Probably not.

But I think the problem is that the auditors weren’t even close. If a company reported a profit of $1 billion and actually had a profit of $500 million, that is a material misstatement. If the company should have reported a loss of $2 billion and instead reported a profit of $1 billion, I can’t see this as a failure to do tests. The problem is that whatever tests were performed weren’t performed competently.

Its also true that there are people in audit firms that are willing to do whatever the Partner asks. Thats why things like this blog exist. My issue is that too often (not always) this blog holds audit firms to an unrealistic standard, and rarely gives credit where it is due.

What do I know though?

-IJustWorkHere