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December 04, 2019


Richard Brodsky

Jim, as usual, I agree with you on the details but wonder about the -- excuse me -- bottom line. The issue, as always, is whether the information supplied by for-profit entities (who are consultants who offer "attest" services, not "CPA firms") about another company in "audit reports" can best be provided by those entities, at least under the present circumstances. You seem to have long since identified the problem but seem unwilling to confront this basic issue. Maybe that's not fair--maybe all of the proposed "solutions" are doomed. I am not a CPA but I am a lawyer who spent years defending them, including Big 8 and Little 8 firms, in litigation, SEC and state regulatory enforcement matters involving allegedly failed audits. Time and again, partners' concern over losing a client caused either a weakening of the will or a willingness to accept fairy stories. That, plus inadequate training or willingness to hire staff cut from the same cloth. The political and economic power of the accounting industry and big companies will prevent this issue from ever being effectively confronted at the governmental level, where it belongs.

Jim Peterson

Richard - Thanks for your comment — always welcome -- and the perspective from your broad experience. Far from being “unwilling to confront” the serious issues that threaten both the franchise of the large firms and their very existence, I have been calling for years for the necessity of a fundamental re-engineering of the Big Audit model to make it both sustainable and fit for purpose — here on the blog, in the fullest detail in my first book, “Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms,” and this last spring, with specific focus on the impractical and unachievable “solutions” mooted in the intense environment of the UK, “DOA: Can Big Audit Survive the UK Regulators?” (both on Amazon).

It is unfortunate that in the inter-locking relationships among the issuers, auditors, regulators and politicians, and information users including investors, the mutuality of denial, evasion, inertia and mis-aligned incentives all act to inhibit progress toward the necessary changes. It would be truly unpleasant if events were forced by another Andersen-scale collapse, with the attendant loss of expertise and experience — but as nobody can assure that such a catastrophic break-down cannot or will not happen, the prospect should in my view be confronted explicitly and with candor.

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