When each of the notorious “financial crisis” institutions collapsed, were bailed out/nationalized by their governments or were acquired/rescued by “healthier” institutions, they were all carrying in their wallets non-qualified, clean opinions on their financial statements from their auditors.
Given the pressures on costs and the longstanding ties some finance, audit, and accounting executives have with the accounting firms, it is not surprising that the weakening of the independence commitment may come from the companies themselves. What’s the downside for them? The potential for scrutiny by corporate governance experts and journalists? You can’t argue with a recession. And in the event of an accounting scandal or restatement, plaintiff’s lawyers will have an uphill battle to penetrate the impenetrable auditor liability shields and caps.
What’s lost in all of this discussion of efficiency and cost cutting?
Independence protects shareholder’s interests.
US and Indian regulators and investigators are focusing on the wrong thing when investigating the Satyam scandal. It’s not the audit failure that’s most important.
Follow the money.
Risk and Quality. Territory- and client-focused reviews. Tone at the top. PwC Experience. Network of the Future. Accountability. Regulatory environment. Implications of recent rulings and settlements.
Quite a full plate for this Global Board. And that’s only the first paragraph after the introduction. Granted, this email is for general distribution to all partners worldwide and probably pretty sanitized, given the possibility it could be inadvertently distributed outside the firm. (Tee hee.)
But the message it clear. A hard rain has already started to ruin PwC’s parade.
It’s been a very hot few weeks here in Chicago. After last weekend’s thunderstorms, we’ve had temperatures between 85-90 or so all week. (That’s 30-32 C for you metric folks.)
Needless to say, Rosie Rott and I have been drinking a lot of liquids. I feel like a broken record telling everyone at an event last night, “It’s about time we had hot weather. Wasn’t that a lousy winter we had, worst ever? I blew five tires from potholes. Oh, how I wished I was in Mexico. Better sunshine than snow. I just turned off my heat on Memorial Day weekend…”
Such is the nature of chit-chat.
It’s been a busy week for me, in spite of the fact some of you may complain about the lack of a new blockbuster post.
Independence is one of the most important concepts a public accountant must grapple with. Before the technical standards, before the decisions about classification of transactions, before the methodologies, checklists, and workpapers, before any mechanical pencils are pumped with lead, one must decide whether to accept the client, and every subsequent engagement for that client, based on the codified standards for independence and objectivity, as well as one’s appetite for risk…To reenter the systems integration business, PwC had to find a way around their own weakness in technology leadership, lack of experienced resources, and the constraints of the IBM non-compete agreement.
Enter Satyam.
Not so long ago, Dennis Howlett and I went public with a bet:
Which Big 4 audit firm is the next to fail?
Dennis believes that I’m betting on PwC as next to fail. I don’t honestly remember committing to that, but I’m willing to go with it for the sake of argument. This is in spite of the fact that the other Big 4 have plenty to worry about and the next tier firms are in no way ready for prime time.
A discussion with Ron Silberstein was the inspiration for my previous post on the question of a GM bankruptcy. Now he’s written a rebuttal. It’s reprinted here, in its entirety.
Getting and spending, we lay waste our powers;
Little we see in Nature that is ours;
It was only a couple of days ago that Price Waterhouse India was plotting their defense to this “everything old is new again” fine mess they’ve gotten themselves into.
To understand the concept of ‘global network of firms” as used by the world’s largest audit firms, we need to review at a case that’s closest to potentially “piercing the veil” of this sham structure.
Apologies to William Shakespeare and to one of his most beloved speeches from Romeo and Juliet:
Tis but thy name that is the enemy of PricewaterhouseCoopers;
Pricewaterhouse & Co India
Thou art thyself, though not really PriceWaterhouseCoopers.
What’s PricewaterhouseCoopers?
It is neither here, nor there,
Neither men, nor solid rock, nor any other part
Belonging to a true firm.
