“Prediction is very difficult, especially if it’s about the future.”
-- Danish physicist Niels Bohr (attrib.)
A new year dawns on the world of financial information, accounting and assurance. A brief glance backward and forward indicates that things are still pretty much as they have been.
A recent sampling in several categories:
- On the always fraught state of relations among the players – the Center for Audit Quality on behalf of the large firms teed off on the European Union’s advancing proposal for mandatory auditor rotation; while for the business community, the Committee on Capital Markets Regulation’s comment letter took umbrage at the proposals of the Public Company Accounting Review Board addressed to the unsatisfactory nature of the standard auditor’s report.
- On gate-keeper liability – the calendar turned, and JP Morgan Chase fed still another enormous settlement package into its $ 20 billion outflow – this one involving a deferred prosecution agreement in lieu of a guilty plea, and fines totaling over $ 2 billion, to close the door on the bank’s blind-eyed failure to alert American law enforcement to Bernie Madoff’s multi-year Ponzi scheme.
- On the ages-old threat to legitimate accounting and reporting in the area of revenue recognition – UK-based software company Autonomy was threatened by the US Air Force with debarment from US government contracting, based on allegations of manipulations on uncompleted transactions with resellers MicroTech and Capax Global (here and here).
- And on the never-progressing question of global accounting standards convergence, the complete lack of substantive movement shown in the array of defensive speeches by the regulators in December perfectly captured the grim futility expressed by C.S. Lewis -- “always winter but never Christmas.”
Am I alone in feeling under-nourished by this menu of “same old”? It seems not.
Not so much among the stalwart news-bearers, who continue their vital and informative functions – the likes of Edith Orenstein’s FEI blog, Bruce Carton’s Securities Docket and Kevin LaCroix’s D&O Diary.
It’s the tone of those usually depended on to afflict the responsible, or so it seems to me: Tony Catanach’s Grumpy Old Accountant and Tom Selling’s Accounting Onion look to be on reduced schedules and lowered levels of pique and irritation; Dave Albrecht at The Summa has gone quiet all fall; Richard Murphy and Dennis Howlett over in Europe much the same. And while Adrienne Gonzalez steps ably into Caleb Newquist’s big shoes at Going Concern, even the omni-present and sharp-tongued Francine McKenna at Re:The Auditors has mainly been mining well-familiar themes.
It’s briefly tempting in this dark season to perceive a general attitude somewhere between fatigue, frustration and plain winter chill. So what should be expected, in this enervated environment:
- In time, an ugly and expensive resolution of HP’s claims for accounting fraud in its eleven billion dollar purchase of Autonomy, with egg on the faces of all involved.
- Continuing reduction in the enthusiasm and activity of law enforcement agencies to pursue the financial engineers of the 2007-2008 financial crisis.
- On-going antagonisms across the accountancy regulators’ lines of geography, authority and influence – including an absence of substantive progress on such issues as financial transparency in China, effective impact of the PCAOB’s auditor inspection program, and the persistent divergence of global standards.
- And finally – annual reporting season being the time when the corporate closets are rattled and the bones of the financial skeletons fall out – the likely eruption of one or more scandals on an epic scale.
As to the last of these, it only needs remembering, as I constantly urge on my graduate-level students in Risk Management and Policy-Making, that in the ever-fluid and constantly evolving world of commerce and finance:
- The human capacity for folly and mischief is constantly renewed.
- Just like any other complex system designed and run by fallible human beings, markets and economies are constantly subject to disruption and break-down on a potentially disruptive scale.
- On top of which, cyclical eruptions of malfeasance and excess are inevitable in the marketplace.
- The next generation of manipulators and white-collar criminals will have no memory of their predecessors, much less be deterred by the prison terms imposed on selected miscreants -- a Madoff or a Skilling.
And above all, that the limited vision and competence of legislators and regulators mean that they can be counted on to fight the last battle with futility rather than prevent the next one with skill and perception
Or as put by the late Australian song-writer Peter Allen:
"Don’t throw the past away
"You might need it some rainy day
"Dreams can come true again
"When everything old is new again"
It may be predicted with utter confidence, in other words, that we will shortly take delivery of a platter of spicy and appetizing new material on which to feast.
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