“How can you hope to improve, if you can’t tell whether you’re good or not?”
My article, Failure Study: A Needed Addition to the Accounting Toolkit, is just out in the March edition of the CPA Journal, published by the New York State Society of CPAs.
With my thanks to editor-in-chief Rick Kravitz and his team, a direct link is here. And because not all readers here would have the Journal on their lists, it’s my pleasure to offer it in PDF below.
Here's the theme: the accounting profession lacks a forum by which to examine its instances of questionable performance, for lessons to be learned and opportunities to improve.
While “failure study” is an article of faith, deeply embedded and pursued in many other sectors – medical care, engineering, aviation safety and operations, manufacturing processes – the accounting profession has found reasons, if not justifications, not to join.
For context, recent months have seen refreshed examples, circling the globe with intensified criticism, that repeat the invariable question – “Where were the auditors”:
- The January 2018 collapse of contracting giant Carillion in the United Kingdom, arousing regulators, politicians and media alike.
- Money laundering through the Estonian branch of Danske Bank.
- Falsified transactions at South Africa–based Steinhoff.
- The looting of Malaysia’s 1MDB fund.
- Litigation in Japan by shareholders of Toshiba.
- In the US, criminal proceedings relating to information theft and mis-use by PCAOB employees and senior personnel at KPMG, and PwC’s settlement of the FDIC’s judgment relating to Colonial Bank.
As spelled out in the Journal article, the structure and remit of an effective failure study forum are available, for the value it could bring to an assurance model now under challenges – from these examples and any number of others -- of trustworthiness, stability and fitness for purpose.
The conceded difficulty would be one of implementation, involving all the participants in the Big Audit model. Nothing less would be required than broad cooperation and buy-in -- from issuers of financial information, users in the capital markets, the accounting firms providing assurance, standard setters, legislators, and regulators and law enforcement agencies.
Discussion and debate – reactions and comments – are invited and welcome.
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