Another Major Scandal
Monday, September 7, 2009 | (amf97) Is this Spam?Much of the financial turmoil could have been avoided or at least minimized if the major CPA firms who audit all the large publicly held companies had been forthright and honest in presenting their finding as revealed to them by their annual audits.
I have been a CPA since May 1947. I have taught auditing at two major universities and for the AICPA. I am a former member of the prestegious Audit Standards Committee of the AICPA, and a retired managing partner of the Houston office of a national accounting firm I feel this qualifies me to pass judgment on my fellow CPAs.
The Audit profession prides itself as being independent. Nothing could be further from the truth when it comes to reorting of troubled companies.
WorldCom hid losses of $3.8 billion in plant and equipment and intangible assets. How could the auditors "miss" that?
Enron loaded up its books with fraudulent general journal entries. How could professional auditors miss that?
AIG sold million of dollars of "SWAPS" and recorded no provions for future losses. Futhermore its auditors stated in their report that AIG had adequate accounting and management controls so that its positions in derivatives were properly revealed.
The major lenders of sub prime mortgages were audited by various firms. Yet, nome of them blue the whisle. The auditors were required to give positive affirmation that the internal financial and management controls were strong enough to prevent loans being made to unqualified borrowers or on inadequit collateral. Furthermore many of these sub standard loans had no decent loan files. Also, the use of positive confirmations might have revealed that the borrowers could not be located. A negative report would have told the investing public that something was rotten in Denmark.
My solution. Separate the auditor from his client. Establish surety companies in every state and have them retain the auditors. Then the auditors would be truly independent
