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July 17, 2018

Comments

GREG CARNEY

I was a consulting partner with Accenture starting when it was still Andersen Consulting LLC and part of the Arthur Andersen World Wide Organization. To a non-audit partner, the audit practice had a strong resemblance to an insurance company where unhappy investors and creditors looked to the attesting audit firm to make good any and all investment losses due to poor performance by the audited company, no matter what sort of advisories and warning statements had been included in the audit report short of going concern warnings. As such, it seemed as if audit fees should have been set as risk premiums on the basis of actuarial analysis rather than based on the audit work program. In addition, it certainly seemed reasonable for the auditors to try to limit total liability exposure through contractual limitations (e.g., maximum loss indemnifications), re-insurance, assigning audits (and related risk) to different smaller corporate entities or other steps that might work within the existing or future regulatory and legal environments in the various countries where the firm(s) practiced. Of course, it was easy for the non-audit practices to make these suggestions, but it was never clear whether any of these options were ever being earnestly pursued.

Jim Peterson

Thanks Greg and welcome. You've well articulated the auditor/user "expectations gap" -- both in your AC/Accenture days and still today. As for the possible "solutions" you mention, they remain as unachievable today as ever -- insurance at meaningful levels has long since been unavailable; fees cannot be charged to underwrite exposures in the billions; liability limitations are not permitted by the SEC or other securities regulators; and the scale of geographic presence and expertise makes impossible the emergence of new competitors or structures at the global level. For fuller discussion I invite you to my book, "Count Down" - on Amazon here: http://amzn.to/2rFeA7m

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