From today’s The Times of London Online:
Leading accountants will meet the Government this week to plead for protection as they prepare for a surge in litigation from investors trying to recover their losses from big company failures.
The Big Four — Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers (PwC) — are braced for an increase in legal action from investors and liquidators as the economic crisis continues.
They fear that a blockbuster lawsuit, if successful, could put one or more of them out of business. That could trigger the collapse of the audit market and cause chaos for business, they say. All but two members of the FTSE 100 are audited by the Big Four…Last month, the US Securities and Exchange Commission (SEC), the American financial regulator, said that it would block any such deals involving British companies that were also registered in the United States.
The SEC fears that directors and auditors could cut secret deals under which auditors are given proportionate liability in return for glossing over the company’s accounts.
I’m so glad they put it in print. Because if you told anyone that this is the best the auditors could come up with to try to avoid liability for their aiding, abetting, voluntary abeyance, negligent neglect, errors, omissions and occasional commissions of fraud, they would laugh out loud.
“…a blockbuster lawsuit, if successful, could put one or more of them out of business. That could trigger the collapse of the audit market and cause chaos for business…”
Well, there are some doozies on the docket – really big lawsuit burritos giving the firms blockbuster indigestion:
- BDO International and Banco Espiritu Santo
- Deloite and Parmalat
- KPMG and New Century
- PwC and Satyam
- Madoff feeder funds, et al. and Grant Thornton, BDO, EY, PwC…
- Refco and Grant Thornton
Well, I have detailed it all before and some of the above are new even since then.
And there are, for sure, more to come as a result of the financial crisis.
Which brings us to the most ridiculous part of the above statement:
“…That could trigger the collapse of the audit market and cause chaos for business…”
We should care that the audit market collapses? Audits are required by regulators, exchanges, banks, bond investors… A formality at this point. And that’s being generous.
Who exactly trusts any more that the audit opinion gives a seal of approval on the viability, the “going concern” quality, of any public company? What exactly are we paying millions and millions for?
And the loss of this seal of approval on financial statements, one that gives no one any comfort anymore, will cause chaos for business? Can the collapse of the audit market cause any more chaos than we already have due to the audit firms neither identifying, mitigating, or warning in time of the material misstatements, illusory valuations, and fiendish fraudsters that have created the crisis we are currently experiencing? Is anyone really that afraid of financial statements issued without these auditors’ opinions?
Postscript: Not suprisingly, Dennis Howlett and I were thinking about this article at the same time. Here’s his take, which includes a comment from me.