GAO Says, "No Gorillas In The Room."

Unlike the UK and EU regulators, the GAO, led by David Walker, doesn’t believe there is a problem primarily because they do not know how to solve it. Or perhaps the GAO does not have the cojones to acknowledge what others are saying.

That is very disappointing.
Report reassures on Big Four auditors
The concentration of the global auditing business in the hands of the “big four” firms – KPMG, PwC, Ernst & Young and Deloitte – does not yet warrant government intervention, a report by the investigative arm of the US Congress said yesterday. The conclusion, by the Government Accountability Office, contrasts with a steady drumbeat of -warnings contained in recent high-level reports by private-sector groups, such as the US Chamber of Commerce.

Hank Paulson, Treasury secretary, said at the time: “There are legitimate questions about the sustainability of the auditing profession’s business model and concern about the high degree of auditor concentration among the largest public companies.”

However, the GAO concluded: “Given the lack of significant adverse effect of concentration in the current environment and that no clear consensus exists on how to reduce concentration, no compelling need for immediate action appears to exist.”

The office found that the largest accounting firms audit 98 per cent of the more than 1,500 largest public companies – those with annual revenues exceeding $1bn – up from 78 per cent in 2003.

David Walker, US comptroller general and head of the GAO, acknowledged the trend. But he told the Financial Times: “Part of the question should be: what form would any [remedial] action take? There are not that many actions that the government could take in this regard.”

Mr Walker, a former PwC executive, added: “The federal government is concerned with consumer protection. In connection with that, you get concerned to the extent that there is too much concentration that could increase price and/or reduce quality. And it’s not evident that that is the case at this point in time.”

I guess Mr. Walker is blissfully unaware of the crippling litigation the Big 4 and the next tier firms like GT (Parmalat and Refco) and BDO are facing.

Maybe Mr. Walker sees no reason why the Big 4 should be held responsible for their clients’ disastrous decisions leading to the sub prime and credit crises or their willingness to go along with clients’ lack of disclosure of those mistakes.

Maybe he has never read the reports from the PCAOB on poor audit quality at all of the firms: PwC, KPMG, Deloitte, and EY.

Maybe Mr. Walker is blind to the dramatic rise in all fees for audits and consulting due to Sarbanes-Oxley given the stranglehold the Big 4 have on providing services to the largest public firms under this mandatory requirement.

Maybe Mr. Walker is not up to speed on the blunders his former firm has made outside the US: Japan, Moscow, Brazil and the UK.

Maybe Mr. Walker doesn’t believe that lack of competition means the Big 4 can get away with encouraging, aiding, and abetting their clients’ use of the government as a “cash cow” or with cheating the government itself.

Maybe Mr. Walker is looking the other way as another Big 4 buys its way into shady deals via former government officials acting as lobbyists or performs services of the most extraordinary kind in unusual places.

Maybe Mr. Walker is dumb to the fact that it’s so bad, auditors won’t resign and aren’t fired, even when they’re sued by their own client’s shareholders.

Maybe Mr. Walker conveniently forgot that one of the firms had to be brought back from the abyss because the USDOJ believes there are too few for any one of them to fail.

Maybe Mr. Walker is oblivious to the huge settlements the firms have made due to their direct culpability in giant failures such as Tyco and Adelphia and their complicity in stock options backdating cases.

Maybe Mr. Walker is ignorant of the monopoly the Big 4 have on the labor market that provides the resources to perform their services, both in the recruitment and in the employment of those staff.

Given that Mr. Walker is both an Arthur Andersen and PwC alumnus, maybe he’s just like Mr. Olson – afraid of, or too close to, his former Big 4 colleagues to be able to be honest with us.

7 replies
  1. Anonymous
    Anonymous says:

    Well, I only know what I read, but consider the following:

    1)Walker filed a lawsuit against the Administration re: Cheney’s refusal to disclose who participated in his Energy Taskforce meetings;(and I voted for Bush/Cheney in 2000–everyone makes mistakes!)

    2) Walker has used his office as a bullypulpit to discuss the long-term financial ill health of this country and its unsustainable debtload;

    3) Walker led the GAO in dissecting what I consider to be misleading propaganda regarding the success of the surge in Iraq.

    Maybe he thinks he has enough on his plate without picking a fight with the entire accounting profession. Or maybe the markets are in such a precarious position at the moment that he doesn’t want to be construed as pouring oil on a fire.

    It’s not that I disagree with your outlook on the profession’s failures. I may be even more of a pessimist than you. I’m afraid what’s headed our way economically will make the issue of the role of public accountants as watchdogs of large public corporations irrelevant.

  2. Francine McKenna
    Francine McKenna says:

    I agree. Mr. Walker has occasionally stood up to be counted. But a good economy hides a lot of ills. The monitors and watchdogs are even more important when things start going south and higher and higher revenues and profits can’t delude aren’t these corporate guys into thinking they were born on third base anymore when all they’ve ever done is hit singles into a strong wind. Thanks for your comments.

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