During the recent failures in the global financial system
one group of participants have remained largely unscathed for their part in the
train wreck, the Auditors.
Now almost as an afterthought the House of Lords has
produced a report slamming the profession for failing to predict the financial
crisis. It said that firms needed to do more to create a culture of
professional scepticism claiming that the level of challenge on intangible
assets such as goodwill was woefully inadequate.
Essentially there are many instances of conflict of interest
such as taking on consultancy work for Clients and becoming too cosy with
management teams.
It is all too easy for companies to bully the young staffers
sent in to do the grunt work .For
example what chance has a newly appointed auditor walking around a factory
warehouse to adequate value stock? In reality they have to rely on the company
for “valuations” and this can result in a totally inaccurate picture being presented.
The validity of a company’s accounts reflects the integrity
of the company which is being audited. As is being demonstrated with the
banking crisis in Spain an unrealistic valuation of the property portfolio either
through deviousness or sheer incompetence will ultimately have disastrous
consequences.
Rarely will a company or individual be able to hide losses
indefinitely as witnessed by the likes of Maxwell, Madoff, and Stanford.
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