« In Appreciation: Peter Fleming -- The Accountants Lose a Friend | Main | Satyam's Auditors from PwC Remain in Custody -- A Prisoners' Dilemma for "Indian Justice" »

January 24, 2009


Edith Orenstein

Jim, you're right, there are an array of simple procedures performed by first and second year auditors (like pulling a time card or payroll sheet and walking around to verify a sample of listed employees actually exist and are working) and complex (automated forensic data comparisons of records) to verify legitimate vs. phantom employees. The examples you give remind me of another example, where Enron had a pretend trading floor it showed off to analysts, as described in this article: http://www.click2houston.com/news/1248368/detail.html. (Shades of Madoff Investment Securities too, perhaps http://www.boston.com/business/articles/2009/01/15/madoff_might_not_have_made_any_trades/.)

Mark Peecher

Great example. While it will be interesting to watch how allegations align with facts in this sad case, your points about the criticality of digging into business realities, or, what my co-authors Tim Bell, Ira Solomon and I elsewhere have called "entity business states" as a means to cross-check and stop fraudulent management's representations, hits the bulls eye. What's more interesting here are the seemingly simple procedures that could have shed light on the mis-match between the management's asserted reality and actual business reality.

While watching from afar requires customary limitations and caveats to be noted (we surely don't have the whole story and I don't want to reach any conclusions about the degree to which audits were shoddy w/o more complete information), the early, emerging particulars of this case to date are worrisome.

See Bell, Peecher and Solomon 2005. The 21st Century Public Company Audit. KPMG International. Available at:


Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)


Never miss a post
Please enter all required fields
Correct invalid entries

Follow Me

  • © 2007-2024 James R Peterson Special thanks: Francine McKenna. Always with love: Kat and Julie. In memory: Bob White, Stuart Kadison