Financial Journalism and Its Discontents: Covering Auditors’ Role in the Crisis

This article was originally published at Going on April 15, 2010.

I was in New York City last week for a conference at Columbia University, “Facing The Fracture: Media and Economic Understanding.”

“Journalists are under intense pressure to analyze and explain the fast-moving events of the Great Recession, yet do so while their own future and business model is up for debate.”

Most journalists I know take themselves and their work very seriously.  Did you know accounting is not the only profession that has a public duty?

“This unprecedented situation has produced extraordinary reporting and raised questions about the role that the business press needs to play in order to fulfill its duties as the Fourth Estate.”

Panels included luminaries from print and online journalism as well as a very bold-faced name from economics, Nobel laureate Joseph Stiglitz. Globalization and Its Discontents, published in 2002, has a prominent place on my bookshelf.  Stiglitz’s book helped me understand my experience working for KPMG/BearingPoint and JP Morgan in Mexico and South America 1997-2001.

The conference was co-sponsored by the Roosevelt Institute and the Columbia Journalism Review (CJR).  CJR has been especially supportive of my work on the financial crisis lately. Roosevelt Institute has a great compilation of thought leadership on regulatory reform, Make Markets Be Markets. I’ve quoted Lynn Turner often as another fierce critic of the audit industry and its consistent disregard for the true client, the shareholder. He has an article there with Professor Frank Partnoy on off-balance sheet accounting.

I enjoyed the speakers and listened rather than taking copious notes. There’s a Twitter stream that includes some of my Tweets.

I also finally met “Yves Smith,” the author of the blog Naked Capitalism. Her panel included bloggers and online journalists and focused on the role of non-traditional media during the financial crisis.  The consensus was that bloggers served a very important role because we are quick out of the gate with breaking news, able stay on a story like a dog on a bone, are less constrained by institutional and corporate conflicts, and are often subject matter experts – real practitioners of what we write about rather than generic j-school graduates.

Bloggers and other non-traditional media have the disadvantages, though, of fewer resources, no editor, and the reputation for being irresponsible and scurrilous. We think that last charge is undeserved.  The financial “blogosphere” acts as a collective editor, filtering out and demoting inaccurate unfair and irresponsible accounts, and promoting useful, inventive and original content in a collaborative way that mitigates each of our own limitations.

The panel I really came for was a lunchtime discussion between Martin Wolf, chief economics commentator at the Financial Times and Nobel laureate Joseph Stiglitz. My question to Mr. Wolf and Professor Stiglitz :

“Two themes I don’t think were addressed by the media during the financial crisis were: 1) Fraud by financial firm executives, and 2) Aiding and abetting of fraud by the auditors of failed and bailed out banks. Until the Lehman Bankruptcy Examiner report was issued on March 11th, there was complete silence on the accounting fraud behind the crisis. Auditors have yet to be called to account for their role in not warning us about or mitigating fraud. Why do you think this is?”

They both responded. I am loosely paraphrasing:

“Writing about accounting fraud is too hard for most journalists. There are exceptions, but there’s a perception that accounting is not as exciting or sexy as finance. Without obvious smoking guns, journalists reach for explanations that are more palatable to business readers. General finance and economics experts give better quotes and copy than auditors. It takes a 2,200-page report with pointed language from a bankruptcy examiner to bring accounting topics into the discussion. Journalists are now forced to work harder to explain what’s happened and to interpret solutions.”

Unfortunately, my experience writing about the accounting industry matches their comments. I don’t wish for a crisis or a major fraud to make my point, but I’ll take it. I’ve said throughout the subprime crisis that morphed into the financial crisis that fraud played a role and the auditors were, at least, negligent and potentially complicit in that fraud.

Earlier this week I was quoted in the New York Times saying that again.  I hope it’s the start, not the end, of more intense focus on the auditors’ role in the crisis.

9 replies
  1. David Albrecht
    David Albrecht says:


    Thanks for bringing this issue to light, again. I think the accounting bloggers do a great service, as the industry sorely needs suggestions for improvement. Unfortunately, it doesn’t pay well enough to bring in enough. Other than you, everyone else has a day job. And as you so correctly point out, the professionals don’t have an accounting background, they have joiurnalism backgrounds.

    So, it is left to Newquist, Peterson, Selling and McIntosh to comment on the accounting issues of the day. Of course, the accounting professors at AECM also discuss, but because they don’t function in blog format their discussions don’t spread too far.

  2. Aubrey M. Farb
    Aubrey M. Farb says:

    In my opinion the financial journalists are missing a good bet for an earth shaking expose’ of the major CPA firms.

    Government has the responsibility of protecting the fiinancial welfare of its citizens. When it comes to regulating businesses and financial institutions, the government should be able to rely on the SEC and the accounting profession.

    I am not qualified to express an opinion on the activities of the SEC. I feel reasonably sure that like most government agencies it has a less than spectacular history.

    On the other hand, the government has given the CPA profession almost a monopoly to audit every public entity. In doing so, it placed upon the accounting profession an almost sacred trust and a duty to protect the citizens of our great country from financial losses.

    Based on the reported major frauds that have occured in the past 15 years: WorldCom, Enron, Countrywide Mortgage,. Lehman Brothers, Rite-Aid, and AIG, it is my considered opiinion that the profession has failed in its duties and reaponsibilities to our country. In addiotion, the reporting of the major auditing firms in their audits of the major makers of sub prime mortgages clearly shows that their audiors failed to bring to light the machinations of the loan makers, loan sharks, and Fannie Mae and Freddie Mac who pushed for the lenders to loosen their lending standfards. (For a more complete analysis of this subject, I refer you to my blog entitled “SubPrime Auditing the Fox in the Chicken Coop.” Why haven’t the financial journalists reported on this sad set of circumstances? It beats me. I have repeatedly written to major journalists suggesting that they join me in exposiong the unacceptible state of affairs when it comes to the certifications of the audit reports of the major frauds that have been perpetrated. Even though the sub prime mortgage scandal almost wrecked our nation’s economy, we are still suffering from the overbuilt condition of the housing industry, whixh has led to sulbstantial unemployment in our entire economy.

    Some say that the journalists have not taken up the problem because there is no “smoking gun.” I find that hard to understand.. When AIG almost goes bankrupt with one of the major causes being that it did not properly account for its derivatives and we find that its auditors, Price Waterhouse Coopers, in their 2005 audit report stated that AIG had completely and accurately accounted for its derivatiives, I call that a “smoking gun”

    When millions of dollars, probably, billions of dallars of mortgages are proven to be made to unqualified borrowers and that most tof these loans did not have adequate loan files, and when the auditors of the makers of these uncolectible motagees received audit reports stating that the auditor certified that based on the companies’ internal financial and mangement controls, loans could not be made to unqualified borrowers, I call that a “smoking gun.”

    The evidence is there. Read the Lehman Brothers’ bankruptcy report to learn about the machinations of Lehman’s auditors. Isn’ this a “smoking gun?”

    It is past time for the financial journalists to accept their responsibility to the citizens of this country and report in detail the sorry stste of affairs in the audit profession. I stand ready to assist them and will readily outline the audit procedures that should have been used in order for the various auditing firms to have been able to accurately report their finding and to properly report the in accordance with the requirements of the American Institute of Certified Accountants.

    I have a long historey of teaching auditing, running a major CPA practice, and serving the accounting profession in many professional ways, including membershnip on its prestigous Auditing Standards Committee and its Audit Task Force to Assist President Nixon’s Blue Ribbon Committee charged with the responsibility of reorganizing the Defense Department.

    I rest my case.

  3. Darla
    Darla says:

    My husband and I were just talking about Enron and Worldcom the other day, reminiscing on some of our country’s embarrassing moments in financial history, and talking about my mother’s financial loss over the last several years.

    Aubrey said:

    “Based on the reported major frauds that have occured in the past 15 years: WorldCom, Enron, Countrywide Mortgage,. Lehman Brothers, Rite-Aid, and AIG, it is my considered opiinion that the profession has failed in its duties and reaponsibilities to our country.”

    I completely agree and cannot state it any better than this. The writing is on the wall and I don’t know how anyone could intelligently disagree. The audit profession needs some major changes and like right now! What else has to happen before this is done?

    Here’s to a better future…

  4. Charlie
    Charlie says:

    Everytime I read these kind of articles, it really irks me to no end. Why does news have to be exciting?

    “accounting is not as exciting or sexy as finance”

    So what, report the news. Let the public know what is going on and why. I have family in the states that have lost most of their retirement due to the sheningans of companies like Enron and Worldcom. Maybe if there had been more reporting, these problems could have been brought to light earlier and dealt with. Sexy it may not be, but there are a plethora of people who would have loved to have read the unsexy, unexciting news about accounting, especially when it affects their lives.

  5. Francine
    Francine says:


    I agree with you. It’s why I’m writing even though many have discouraged me by saying that nothing happens in accounting or it’s niche interest at most.

    The reality of media today, however, is that you have to make your work readable. And you have to know your audience. When I started my intention was to write for the regulators and those inside the firms at the leadership level who can effect change. I also wanted to raise awareness amongst the staff and run-of-the-mill partner about how the firms are really run at the highest and global levels. It’s important in your professional life to know what you’re getting yourself into, what you’re into, and how to manage it for your best result – for you and your family, as well as to meet your professional obligations.

    Over time, the site has gained a wider following – academics, financial and technology professionals in industry, global regulators, and general business professionals as well as other journalists. As such, I have to be both informative and engaging. Many of those who read about an accounting firm because it’s in the news today have no context. Many have no patience for acquiring any context. It’s a challenge.

    Lastly, I have to maintain my own motivation. It’s a lonely job and I have many interests besides accounting and the audit industry. Sometimes the music, movies, allusions, and puns are as much for my own entertainment as, I hope, yours.

    Comments and complaints are, of course, always welcome.

  6. Charlie
    Charlie says:


    Just a note about making it interesting. I guess that anything that has a lot of “inside” jargon, which can confuse the lay person will make for uninspiring reading, since the reader becomes confused and loses the context of the article. Since I am not a professional writer, I can only take from my own experience. I think I am fairly well read, but I often skip articles when I have to spend time researching terms or tracing the history of a point.

    Many writers assume that their audience knows everything about the history of an event and forget to either give a short synopsis of the story to bring the reader up to speed or spend too long getting to the point of the story. Guess it is a bit of a balancing act. Adding some humor or relating an event to a more familiar scenario could help. For example, you mentioned movies as a passion of yours, why not when writing about an event, make a reference to a movie. But would Harry Callahan have said about that “Did I use 5 deriatives or did I use 6, Punk” (okay that was pretty bad, but you get the gist)

    Make the writing more user friendly for those who are not immersed in “accounting and auditing” terminology.

    Again, my 1.5 cents, since it probably was not a full cents worth.


  7. Francine
    Francine says:

    Thanks. I add the movies, music, and art to include some irony, sarcasm, or an inside joke. They may be lost on non-English speakers, unfortunately. Do you read the blog at the site or via a feed reader? Take a look at the full site if you don’t already.

    One of the wonderful things about writing a blog online is you can link to everything. I don’t always explain terms or give the back story for everything. I want you to click the links and go to the story I wrote earlier on that piece or the one another journalist wrote. Sometimes I have some fun and link to “Easter Eggs” like the software term. That’s where a link takes you to something fun or funny that you would not expect. Depends on how much coffee I had that day. But anyone who reads without clicking the links misses a lot. I spend a lot of time just choosing the right one. Sometimes it takes more time to choose and insert the links than write the piece.

    My pieces here are already long by most standards. I’m grateful that many sit though to the ned. Because I usually have the punch line at the end.
    I’ve learned to write differently for Forbes. The pieces are shorter, they follow more often the regular journalistic style (put a “lede” or catch first sentence or two at the top, explain what the story is about at the beginning and get more detailed until you trail off.) Since my pieces on this site are opinion/analysis style not news story style I don’t usually do that, but I’m doing it more often.

    I recently wrote an OpEd for a prestigious journal in Boston – it should appear online next week – and had to refine style further. (Thankfully I had a good editor – a luxury I do not have here.) Everything needed to be explained and put in context, every assertion supported and although it was still long, it was shorter by my standards because it contains hardly any excerpts from others. It was longer – 2500 words – because of all the extra explanation. The piece is written for a general, well educated, politically savvy audience, but not one who woud know anythign about the issues I’m discussing except what they read in regular newspapers. And we know how well they usually cover these topics….

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