A true and fair view of the state of the company’s affairs?

 

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 Britain's four biggest accountancy firms have been heavily criticised by the Competition Commission.

The regulator has accused PWC, Ernst & Young, Deloitte and KPMG of being too dominant and not always meeting a shareholder's needs.

The four accountancy firms act as auditors for 90% of the UK's stock-market listed big companies.

They have also been criticised in the past for not doing enough to warn of the financial crisis.

Critics say accountants failed to scrutinise the banks' balance sheets properly, missing the warning signals that led to government bailouts.

The concern is that the relationship between auditors and company management becomes too comfortable with a "tendency for auditors to focus on satisfying management rather than shareholders' needs".

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 was graphically 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.