Comments on: Innovation in audit oversight

By: Who can you trust? Bank or accountant | AccMan

Who can you trust? Bank or accountant | AccMan — Mon, 12 Jan 2009 18:33:05 +0000

[...] Innovation in audit oversight [...]

By: Funding independent audit and regulation | called2account

Funding independent audit and regulation | called2account — Fri, 09 Jan 2009 02:48:38 +0000

[...] Dennis Howlett has a good blog on audit reform today. In it he quotes Joe Weisenthal’ssuggestions on this issue: [...]

By: Dennis Howlett

Dennis Howlett — Thu, 08 Jan 2009 11:01:26 +0000

We’re probably not a million miles apart. I don’t have direct insight into public sector audit though I know a little about it in the sense their reporting is under totally different rules (or at least was). I’m not talking about public sector audits in the way you’re implying but I see the risks.

By: alastair

alastair — Thu, 08 Jan 2009 10:50:39 +0000

But I think we are making the same point – it is the big 4 dominance of the global audit market that is the problem. You could almost argue that the big 4 is no more than a single amorphous mass. If one fails the remaining 3 will mop up the fall out.

Having worked for many years outside of the big 4 (or 20 as it was when I started) I think there is merit in going back to that model. Having also worked in public sector audit I am very clear that this type of regulation does not work; and be very clear that it is this type of regulation that will be the outcome of the type of innovation Joe Weisenthal is suggesting.

By: Dennis Howlett

Dennis Howlett — Thu, 08 Jan 2009 09:52:54 +0000

Yes – frauds will happen. I’m not denying that. I disagree on the oversight question. When I see the PCAOB/SEC reports and then look at how the Big 4 (in particular) continue to snub their overlords I have to wonder whether they really care. Add in the way the SEC for instance muscled the US auditors on mark to market – basically at the behest of the Fed – and you quickly see how the dominoes fall.

Economic penalties in civil lawsuits are effectively giving lie to the notion that auditors have NO duty to detect so why bother pretending it’s a useful shield any more. It could well be that a massive penalty (Satyam?) could bring at least one of them down and that creates real problems in the market.

Joe’s solution has a lot of practical merit and it was on that basis I chose to put it forward as a possible alternative.

We’re in the early stages of this debate but I believe the time is right for radical solutions.

By: alastair

alastair — Thu, 08 Jan 2009 09:29:32 +0000

Why do you think this would be any better? History and human nature tells us that frauds will happen. The problem we have now is not lack of effective oversight of auditors, but simply that the size of the big firms mean there is no effective santion when they get it wrong – whatever happens to them is of no consequence. Or in economic parlance the audit market is failing to deliver because of monopoly forces. You are right about the middle tier – time to break up the big boys.