Just wondering, all this organisations going bankrupt all of a sudden, granted the accounts were audited(which should be the case), how comes the auditors did not pick that they will not be able to continue to operate as going concerns? And the accountants- were they also not aware? I just can’t get it.
Accountants and auditors walk through checklists. When they’re done, they send you their ‘opinion’ (which is copy and pasted) with a huge disclaimer. Their added value for these kind of things is minimal if not none.
How about balance sheet valuations? Do the IAS’s/FASB not cover this?
They value with a rear view mirror and these things always performed well with AAA ratings from Moody’s. Why would an auditor get all excited about it? All they know is they have to cover their back and sign off on the statements.
do you know what an auditors role is? its to the role is to present an audit opinion about the entity. if you are the auditor or Lehmans, all you can do is verify that the entity has a valid claim to the assets of the balance sheets at balance date (and that the income/balances are presented in line with accg standards). you also need to ensure that the entity has included any available information wthin their stmts as to whether the entity is or is not a going concern (which it most likely was at the time of signining the report) based on the information at hand. as the share price spirals, the company finds it harder and harder to refinance its debt, covenants are breached and the company finds itself in the unfavourable position of being declared insolvent. what could an auditor to to prevent this? - issue an unfavourable opinion - that would have basically sped up the process.
PWC did beat up AIG about CDS valuations earlier this year.
Not beat up, they asked additional questions because they didn’t understand the valuations. They didn’t state they were too high or too low, just that they didn’t have a clue either.
You are telling me that Ernst & Young, LEH’s auditors, had no way to know that LEH’s going concern was an issue? With all that is happening with valuations in the last nine months, E&Y could not conclude that $40 billion of assets in LEVEL 3 bucket were dicey, that these assets were valued using measures that were not reflective of market conditions? Am an PwC alum, worked both as an auditor and as a valuation associate. The word “independent” auditor in the annual report is a sham, just as corporate governance and independent board of directors is. The entire accounting industry should be regulated. One would think the regulations after enron and worldcom were the new commandments. Alas, we are humans who continue to suffer since the pandora’s box has opened. Regulation will not eliminate the weaknesses, but it will definitely control it to a larger extent.
Bullocks. It’s the perception of the public that auditors do checks that give you comfort. In fact, I’m quite sure the comfort it provides is making the problem worse. You get in when you wouldn’t have done without their beautiful unqualified opinion. And E&Y could not conclude that the assets were not reflective of market conditions simply because nobody could. In fact, nobody still can. Trusting auditors simply doesn’t make sense. They can confirm that what management reports is true but the interesting stuff is what management does NOT say or report.
Bleeck, If your aseets are down 50% from par when compared to the market indices or what the spreads in the market are telling you, and you are valuing then at 90% of par, there is a logical assumption that you are doing something fishy with your valuation. Period. You don’t need an exact answer.
sid3699, I agree with you. As a former auditor, these shenanigans should have been noticed had someone been diligent with their work. An audit is not a blind and mechanical review of accounts, you are assumed to understand your clients business, however complex it is. And these firms have the brightest and smartest people in the world.
> And these firms have the > brightest and smartest people in the world. Okay now you’re just being silly.
Bleeck Wrote: ------------------------------------------------------- > > And these firms have the > > brightest and smartest people in the world. > > Okay now you’re just being silly. yeah a bit of friday humour. the smartest people in the world may start out at the big 4, but then they find themselves moving on to ibanks and other better paying organisations. all thats left are the few that make partner and the rest that cant get a job elsewhere.
Right, if you’re still at one of them after your first threeyears… I’m pretty worried.
I am pretty amazed at how clueless some of these remarks are about the scope and nature of audit opinions / audits / etc. Financial statements reflect the state of the firms finances at a point in time given business and econcomic circumstances at that time and they cannot be expected to foretell the future (especially a future that has wrought unprecedented adverse market moves which in turn turn one domino (investment bank) after another. Rather it is the geniuses on the street and DC that have managed to separate the underlying investment value (not worth much given shady underwriting practices and absent the assumption that real estate value always grows) with securitized instruments supposedly attested to by the rating agency. Once the market began to smell the underlying rot it set off waves of selling that have brought us to the state we are in. Auditors cannot protect you from poor decision making and structural market flaws
> Auditors cannot protect you from poor decision > making and structural market flaws True, but if you see the poor decision making then you should point that out and not give an unqualified opinion. This is was the essence of the Sarbanes Oxley act, the Cadbury report, etc. If the auditors cannot see what is going on, which was apparent in LEH’s case, for example, why not let machines do the auditing? Why should there be any usuage of the human brain?
sid3699 Wrote: ------------------------------------------------------- > > Auditors cannot protect you from poor decision > > making and structural market flaws > > True, but if you see the poor decision making then > you should point that out and not give an > unqualified opinion. > > This is was the essence of the Sarbanes Oxley act, > the Cadbury report, etc. > > If the auditors cannot see what is going on, which > was apparent in LEH’s case, for example, why not > let machines do the auditing? Why should there be > any usuage of the human brain? cause then we’d need machines to audit the machines. Also auditors just validate the accuracy of material items based on IFRS or GAAP regulations. They express their opinion on the accuracy of the material. They do not state whether the entity is profitable or a going concern etc. thats the job analysts
It is assumed the entity is a going concern and the auditor SHOULD state their opinion if that is not the case…
kevinf12 Wrote: ------------------------------------------------------- > It is assumed the entity is a going concern and > the auditor SHOULD state their opinion if that is > not the case… Exactly my point. The auditors turned a blind eye to what has been going on for the last nine months. Even after BSC collapse they did not learn.
Zoozu Wrote: > cause then we’d need machines to audit the > machines. > > Also auditors just validate the accuracy of > material items based on IFRS or GAAP regulations. > They express their opinion on the accuracy of the > material. They do not state whether the entity is > profitable or a going concern etc. thats the job > analysts Zoozu your statements are very naive. If you are starting out in the accounting/audit profession then you better get some perspective soon. If it is the job of an analyst to assess the going concern, I wonder why no analyst opinion is ever mentioned in the 10k or 10Q. There is a reason why accounting fimrs are called “PUBLIC” accounting firms–they have to answer to the public.