Friday, February 6, 2009

The Gas in GAAS

"[PWC] claims its audits of Satyam Computer Services Ltd. were made 'in accordance with applicable auditing standards and were supported by appropriate audit evidence'. (Pricewaterhouse Defends Its Audit Procedures.' Marketplace, Jan. 9). Rather than explaining an isolated indictment, the accountants' defense of their actions calls into question their entire reason for being. The point of an audit is to guard against fraud. If their 'standard' procedures are so inadequate, why bother with the auditing industry at all? The parallels to the ratings agencies are obvious", Robert Meyer letter to the WSJ, 17 January 2009.

I have likened CPAs to ratings agencies many times. Meyer doesn't know why CPAs have auditing standards: it's to have something to hide behind in lawsuits when CPAs fail to find fraud! Why do firms have whistle-blower hotlines? To surface whistle-blowers, then punish them, see my 10 January 2009 post, link: http://skepticaltexascpa.blogspot.com/2009/01/un-whistle-blowers.html.

2 comments:

Anonymous said...

"There was a steady erosion in business ethics and moral standards in commerce and trade.

Regulatory capture and corruption, from petty corruption to grand corruption to state capture, became common place.

Truth-telling and trust became increasingly scarce commodities in politics and in business life.

The choice between telling the truth (the whole truth and nothing but the truth) and telling a deliberate lie or half-truth became a tactical option.

Combined with increasing myopia, this meant that even reputational considerations no longer acted as a constraint on deliberate deception and the use of lies as a policy instrument."

William Buiter...

Junior said...

Pop,

Though you know I fiercely defend my bean counters because I'm afraid that they will take the blame for much of the financial fallout to come, I cannot help but feel like this is somehow a distraction from the true issue.

How is it that the low men on the totem pole are expected to hold themselves to ethical and diligent standards when the examples set at the top of the scheme are so painfully corrupt and unethical??

The government wants me to pay my taxes but has a tax cheat in charge of the IRS?

Accountants are expected to be ethical but the source of "money" in America is allowed to run free with no audit of its bloated balance sheet?

No wonder we are where we are.

If I, as a parent, set an example for my child to where he begins to believe that there are no consequences for irresponsible actions, how can I possibly expect him to do as I say and not as I do?

Karma is a bitch. And the corporate/governmental/regulatory world is going to have to start paying for the examples it has set. Now that things are beginning to unravel, I cannot imagine that they will be able to contain the fallout which will inevitably ensue. They can make examples of a few. But Satyam is merely the beginning of collapse. And they cannot possibly write off the all-encompassing mess which is about to explode in their faces.

Sadly, the common man will still be left shouldering the consequences of such an explosion.

I've got $10 on PwC being first to bite it in 09 a la AA and Enron. KPMG will surely follow.

and on and on and on and on and on... musical chairs continues. Hopefully you and I find seats when the music stops. As for the rest of them, they deserve every bit that they have coming.