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December 13, 2009

Comments

wdf

Solid summary ... the odd thing that struck me in reading this is how closely the Big 4 might be to the Big 3 automakers in many respects.

Jim

WDF -
Thanks. There's this big difference: you could take out any or even all of the Big 3 automakers, and there would still be a global over-supply of auto manufacturing capacity. Take out any of the Big Four, and the whole system of assurance crashes for want of viable alternative sources of supply.
Jim

Charles H. Green

Jim,

This strikes me as a clear, sober call to arms about the accounting industry.

I'm still not clear just what arms, and with what end, but your thinking clearly elucidates what the right story-lines aren't; and the first step is admitting we've got a problem.

Thanks.

DavidE

I guess you are saying that the Big 4 are useless and are beneficiaries of government rules requiring audits.

I think that each auditor should come up with their own assurance that they would give. The firms that disclaim responsibility would lose customers to those who do not disclaim responsibility.

Let the marketplace work!!!

JD

Jim

The auditors were there and just got it wrong. They will feel the pain from this trying to defend the lawsuits. Whether they can be successfully sued is another matter.

If one or more big firms fail as a result then so be it. In the long run there are enough other audit firms who will eventually step up.

JD


Jim Peterson

JD -- OK, except right down to your ending point. Under the present model of large-firm litigation exposure, independence constraints, limited capital and concentration of resources and expertise, it is just not the case that alternative providers would emerge to replace a failed Big Four firm. That discussion can be expanded at greater length, and has been, but it is over.

Jim

Geoff

I really think a big part of the problem relates to 2 things:
1. the very narrow confines of Audit Opinions. I think they should be more like bond ratings; insane to think all audits in the public sphere are AAA.

And 2. Audits who nag so incessantly about small stuff, it blunts the impactfulness when they show up with the big stuff.

One man's opinion.

JD

Jim

I appreciate that there has been much consideration and speculation about what will happen if and when one of the big 4 fails, including many arguments about why smaller firms will not be able to step-up. However, in the likely case that governments do not intervene strongly then the market is going to be the main determinant of what happens. The supply and demand for audits goes way beyond the big 4 arena and there are a lot of myths that permeate the argument that the next tier firms cannot step up. I don't believe that debate can possibly be finished whilst there is so much uncertainty about how the market would behave.

Jim Peterson

JD -- Thanks. Maybe. But there's no sign from either "the market" or the smaller firms of an appetite or the capability to "step up," and the entire record goes the other way. From here, sadly, the worst-case but also most likely scenario is that of a failure in which case the entire assurance structure will be tested under the most distressed conditions.
Jim

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