re: The Auditors Is Six Years Old

By Francine • Oct 28th, 2012 • Category: Pure Content, You Can Quote Me On That

October 12 was the six year anniversary of this blog. This post was published on the occasion of two years in, in the midst of the financial crisis.

Timing is everything.


Today is a federal holiday in the United States – banks, post offices and federal and city offices are closed.

Today is also the two year birthday of the initiation of this blog.   My first post on October 12, 2006 was entitled, “Keeping Watch.” It was intended to set the tone, commenting on an article the day before in the Financial Times which discussed, in skeptical terms, the recent “merger” activities of the Big 4 in Europe. Having recently left PwC, knowing I wanted to express some very pointed and potentially controversial ideas, I started writing the blog anonymously. But I soon realized it was hardly worth the effort, nor would I ever gain the respect I desired, if I didn’t stand behind my words.
I quickly found, through the power of Google, others who shared my views such as Richard Murphy, Dennis Howlett, and Prem Sikka. Their support emboldened me while also enlightening me. Their writing had wide exposure in the UK and Europe. But there was no one else openly writing about these subjects in the US. I later found Jim Peterson, a former Paris-based Arthur Andersen legal counsel based now in Chicago, who was writing for the International Herald Tribune. He now also carries the torch with me in the US.
A US holiday doesn’t stop the news or the markets around the world from affecting the United States and vice versa. News never did stop on the weekends but it seems now, more than ever, the weekends are times for deals and agreements and if you don’t keep a close eye, you’ll miss them.  I’m gratified that more and more there’s talk about the audit firms and their ineptitude in preventing, warning, and resolving the global financial crisis.
My friend Richard Murphy in the UK asks the question today, “Is This Curtains For the Big 4?” He quotes an article today in the Guardian where he comments on the Fortis failure.

“Fortis’s accounts were jointly audited by KPMG and PricewaterhouseCoopers – two of the big four practices. They have received audit fees running into tens of millions. But they seemingly failed to give investors an indication that Fortis was heading for severe problems…”

Murphy rightly reminds us that, “KPMG et al say they audited within the rules, i.e. they confirmed ‘market value’, but what they do not say is they set the rules, and they were also responsible for suspending the previous rule that required a ‘true and fair over-ride’ meaning that the auditor had to do more than follow the rules.”


Professor Prem Sikka’s latest article in the Guardian is entitled:

The auditors have failed; No one expects auditors to guarantee the survival of a company, yet they did not even notice any of the red warning flags

Dennis Howlett and I agree quite often. His latest article on the Big 4 emphasizes that it’s good the Big 4 are making a public point on fair-value and mark-to-market accounting.  I suspect it has more to do with fear and liability issues over signing financial statements with valuations they have no authority over. They have similar fears over expansion of  litigation contingency disclosure. But any strong statements from the Big 4 that are even slightly contrary to the go-along, get-along approach they usually have with clients are refreshing, albeit much too little much too late. Dennis comments:

“As I have said before, if there is no market for an asset then it has no value although it is possible to impute values that are conservative. It is therefore good to see PwC standing up on this one…”
Jim Petersen has been schmoozing in academic circles, (an oxymoronic statement if there ever was one…) where even accounting professors are starting to wake up to the acrid odor of burnt coffee in the staff room Bunn-o-matic:

So here’s message from academia to the regulators, politicians, think-tank leaders and the large firm managements alike – all sitting there, heads down in denial, confusion or resistance:

There is a lot of hard but rewarding work that has to be done to avert a catastrophe. Is anybody listening?

I will quote another post of mine, one that sums up why I’m here and why I’m staying put. My imminent secret evil plans include not only my book, which is more timely and relevant than I could have ever imagined, but a better, stronger and more interesting blog for you, the reader.
Why do I highlight the “conservative” side of some firms and some leaders of the firms? For the same reason I highlight the self-serving, selfish and transparently manipulative activity of contributing to whatever politician holds the right Committee seat, regardless of party, just because you may perhaps be able to buy their influence.

The blog is meant to highlight, for you the reader, the broad-based influence the Big 4 have in business, politics and social policy. Their reach is only exceeded by their constant grasp. In that sense, I critique, highlight and often times criticize each equally, although unevenly, depending on how the news cookie crumbles. I also try to highlight the firms’ biases equally, but I won’t apologize for the fact that I find those biases falling more often on the political, economic and socially conservative side, except for their window dressing in the areas of equal opportunity and diversity. The actions of the firms with regard to equal opportunity and diversity speak louder than all the words and videos and other public relations events.

And I won’t apologize for my biases when they show. I am still my parents’ daughter, with all the attendant attitudes, baggage and early life experiences that brings, no matter where the world or my chosen career have taken me since.

It’s my blog and I’ll write whatever I want to.

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16 Responses »

  1. Great blog, it’s a very useful and interesting perspective, here’s to many more blog-days to come — there’s no lack of subject matter in the current environment.

    Cheers

  2. Thanks for the great posts Francine.

    Though the markets are open today.

  3. @Anonymous Yes I stand corrected. Futures markets and NYSE open for business and doing well so far.

  4. Happy 2nd birthday re: The Auditors!

  5. You go girl! Rock on!

  6. Congratulations on an excellent blog.

  7. Yes, happy blog-birthday.

  8. Congrats. Your guts are impressive. But sometimes it does appear like you behave like the very audit partners you criticize e.g., by ignoring emails from some of your readers who have also noticed funny things in the audit profession and are thinking of going public with the information. Do you by any chance fear competition? And then you point fingers at Big 4 audit partners. The pot should not call the kettle black.

  9. @Congrats but…

    I’m sorry if I’ve not responded to something quickly. It’s never my intention. On the contrary. But it’s been a busy time the last two weeks, personally and professionally. Drop me another email and remind me, please.

    Also, sometimes when I get controversial news via email, I do my own due diligence and that takes time. No wine before it’s time…

  10. I exchanged emails with your well before the last 2 weeks. Anyways, thanks for having the candour to publish and respond to my initial post. My faith in you is RESTORED!!!(at least partly).

  11. It’s not six-years OLD. It’s six-years YOUNG! Your efforts can bring about billions of dollars of benefits to the investing public.

  12. Francine — Congratulations! And thanks for the inspiration.
    Remarkable how time flies. And, perversely, how little seems to be changed on this patch of turf.
    Faith and diligence will prevail, however.

  13. @Carl Olson

    Thanks. I know you have been at ‘em longer than I have. Your support is much appreciated.

  14. @James Peterson

    Yes, time does fly. I think we have made some progress. These issues are so much more talked about and talked about consistently than six years ago. Unfortunately that is a sign of the dismal economic times and the competitive nature of what I voluntarily put myself in the middle of. C’est la vie…

  15. Francine – keep up the good work. As far as I can see and assess the evidence sems to grow of the unaccountability of the accounting firms and just as bad the “standards” of Ethics regarded as competent and diligent work which they carry out. My persoanl experience iis of E&Y and PwC.

  16. @Brian

    Thanks! I intend to keep on keeping on.

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