“It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”, by Don Quijones

Four big accounting firms control much of America and Europe’s accounting business, and they’ve become virtually untouchable. From Don Quijones at wolfstreet.com:

The construction & services giant collapsed even as KPMG signed off on its financial statements; now they deny any responsibility.

The Big Four accountancy firms — PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte — reported combined annual revenues of $134 billion in 2017. In the global audit arena, they are virtually unassailable. In the US, the Big Four audit 497 of the S&P 500 companies. In the UK, they audit 99 of the FTSE 100 companies. In Spain there’s not a single firm listed on the IBEX 35 whose accounts are not audited by one of the Big Four.

But what are the Big Four firms actually good for?

Given the oligopolistic structure of the global audit industry as well as the potential conflicts of interest that can arise between the auditors’ myriad roles, this is a vital question — and one that is finally being asked by British lawmakers following the epic crash-and-burn of the services and construction giant Carillion.

In recent years, the external and internal auditors of Carillion, KPMG and Deloitte, pocketed a combined £40 million for their services. Yet they abjectly failed to discover, and warn investors of, the company’s precarious condition that caused it to collapse in spectacular fashion in January. Many other market players, including major investors, pension covenant assessors, and hedge funds shorting Carillion stocks on the markets — some with access to the accounts, others without — saw warning signs long before its demise. So, why didn’t the auditors make sure that the company discloses those problem to investors?

Carillion’s external auditor, Dutch-seated KPMG, signed off on its accounts without fail to the very bitter end, even though it was clear that Carillion had wafer-thin profit margins and was dangerously overloaded with debt, including some £2.6 billion worth of pension liabilities, and that between 2012 and 2016 it ran up debts and sold assets just to continue paying out dividends to shareholders.

To continue reading: “It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”

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2 responses to ““It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”, by Don Quijones

  1. The problem isn’t with these firms so much as with the federal regulatory agencies that sign off on these disasters and do nothing to question these reports bona fides. When was the last time you saw the SEC shaken not stirred after how many frauds, collapses, and financial disasters?

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  2. Financial independence exists in inverse proportion to political influence. Said another way: Financially,”he who has the gold makes the rules.” Politically, “he who has the gold determines which rules create the appearance of finance.”

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