Heard at Cocktails… – Francine McKenna

Why is it difficult for non-Big 4 firms to take on more and bigger audit clients? All the firms are limited by the amount of potential liability they can practically take on. Audit firms are self-insured. For a firm in the next tier, accepting an engagement with a billion dollar capitalization public company could be a “bet the farm” decision. A lawsuit, even if it can be settled, could be the end.

Is this an argument for liability reform? In my mind, no. It seems to me an argument for a specialized insurance pool, guaranteed by the public sector maybe. Afterall, the taxpayers and investors pay either way…

I am referring to the issue of the smaller firms, in particular. I will have no sympathy for the Big 4 until they open their books, show someone other than the PCAOB and their bankers their liabilities, their reserves, how they’re calculated and which banks, hedge funds, private equity, mafia dons or unwitting partners who have left their profits on deposit with the firm are funding all of their hubris.