Are Auditors being unfairly blamed?

Kid Curry

This thread over in the accountancy forum is putting the same vote to boardsies that was in the Irish Times online today. "Are auditors being unfairly blamed for the problems being discovered at Irish companies?" It's almost 50/50 at the moment.

zootroid

No.

An auditors job is to report to the shareholders and say whether or not the accounts represent a true and fair view of the company's position and performance. So how they could fail to pick up on the dodgy transfer between Anglo and Irish Life is beyond me.

IrishTonyO

Definitely not, they did not do their job or were not good at doing their job.

BrownianMotion

Considering this poll was posted in the accounting forum I doubt the results will be 'true and fair'.

While the auditors aren't to blame for causing the problems, they are at fault for not identifying them.

Cookie_Monster

It seems to me that the auditors are getting away with it all scot free. I mean surely at the very least those involved with Anglo were totally incompetent or corrupt to sign off those accounts for the last 10 years.

bamboozle

dont know too much about the auditors for Anglo but i wonder if they changed ever 5 years per best practice. doubt it!

Zamboni

They were incompetent or complicit.

They do deserve blame.

Sure what happened to the guys who missed the big transfers from Anglo?
They got a job on the Nama valaution panel.
Ridiculous!

Laminations

If anything is unfair about the role auditors have played its that they haven't received enough blame and little if any consequences.
Its very likely they were operating far below best practice, for this and their incompetence there should have been fines for auditing firms, individual sackings, and revoking of licences to audit if such things exist. The whole idea of auditing is to provide checks and balances as a safety net. Accountants are overpaid calculators, they are amongst the professions (like solicitors) that are comprised of individuals with delusions of grandeur

jmayo

Laminations wrote: »

If anything is unfair about the role auditors have played its that they haven't received enough blame and little if any consequences.
Its very likely they were operating far below best practice, for this and their incompetence there should have been fines for auditing firms, individual sackings, and revoking of licences to audit if such things exist. The whole idea of auditing is to provide checks and balances as a safety net. Accountants are overpaid calculators, they are amongst the professions (like solicitors) that are comprised of individuals with delusions of grandeur

Remember how the Enron affair finished Andersons.
Well if the Anglo affair had occurred in the states would there be only the big three these days ?

IMHO and that of a few accountants I know, there is no way in hell that the auditors should not have asked to see directors' loans and not just the amounts outstanding on the day of the audit as normally they are interested in seeing the transactions on these loans over the year.
And this was a bloody bank after all.

PS remember it was another one of the big four, or more precisely an offshoot of theirs, that did very well out of the PPARS fiasco.

andreab

As an accountant myself (management accountant not auditor) I have been asking the same question for a long time, how in hell did they not say something a long time agao. The should be getting more of the blame. It's a disgrace how these supposed qualified people have gotten away with not adhereing to one of the most basic rules for auditors.

silverharp

I'd put it differently. The companies own financial directors are key people and would have the training to know the difference between sensible growth and reckless lending etc.

As for the auditors they rely on the coorperation of management. If the auditors knowingly left stuff off the audit reports thats one thing but otherwise they broadly did the jobs they were paid to do.

IF you want to look deeper at this. The FASB in the US has caved in and set the accounting standards bar so low that all the crap that is still on the banks books do not have to be marked to market.

cson

Laminations wrote: »

Accountants are overpaid calculators, they are amongst the professions (like solicitors) that are comprised of individuals with delusions of grandeur

I see you've quoted the Pulling It Out Of My Arse Institute for their research on the above. Well done I say.

On topic; seeing as certain people are of the utmost picky nature about it, Ernst & Young should really have fallen on their sword over Anglo. But wait... this is Ireland. No one is accountable for anything. Not even accountants.

stepbar

The trouble is that the wrong people are auditing. The majority of folk auditing at the mo are new entrants who don't have the balls to really question the facts.

cson

stepbar wrote: »

The trouble is that the wrong people are auditing. The majority of folk auditing at the mo are new entrants who don't have the balls to really question the facts.

Tbh it's the same at the top for the most part. Everyone is in bed with everyone else and it is/was easier to turn a blind eye.

jmayo

stepbar wrote: »

The trouble is that the wrong people are auditing. The majority of folk auditing at the mo are new entrants who don't have the balls to really question the facts.

Seriously i think that is cr**.
If someone with basic knowledge finds something really dodgy or unusual, then it is very probable that it is raised with a supervisor and gets pushed up the chain.
BTW if you are auditing a high profile high net worth account that happens to be one of the top banks, don't tell me they sent in complete wet behind the ears half qaulified individuals. :rolleyes:
Did they hell, some people that knew their oats were in those teams somewhere.
Otherwise it would look very unprofessional to send it low calibre people on an audit of a client of this stature.

It is very unlikely that someone did not spot the directors loans over 8 odd years and then falg to a higher level.
It is like Enron, at best the auditors chose to ignore it since they were looking for other business elsewhere.
At worse someone may have gotten something more, maybe a few thousand golfballs ?

dan_d

external, internal or both?
And I haven't heard any auditors being blamed for anything.

thebman

Anytime I've ever been in an audit, they were half-hearted affairs where the company performing the audit wants to pass the company so they get asked back next year which means not asking the questions they should be asking.

Its a flawed system when a private company audits another and the company being audited is paying the bills.

silverharp

thebman wrote: »

Anytime I've ever been in an audit, they were half-hearted affairs where the company performing the audit wants to pass the company so they get asked back next year which means not asking the questions they should be asking.

Its a flawed system when a private company audits another and the company being audited is paying the bills.

Similar problem to the ratings agencies. Shareholders and buyers of securities need to find ways of paying/buying good analysis, anything else will lead a cosy relationship over time or else you end up stupid regulation like Sarbox

hinault

The auditing industry is a shambles.
The audit industry is squarely to blame.

Andersens and Enron.
Ernst & Young and Anglo.

It is important that the uninitiated are aware of the sequence of events concerning an audit.

A company keeps a set of books.
Each year the company prepare the set of the books and give the books to the auditor to audit.

The auditor audits the books as given to them, the auditors makes "audit changes" to the original numbers if required and then after completing the audit presents as part of the statutory accounts presents the income statement/profit and loss accounts and balance sheet for the directors/shareholders/investors to review and to make investment decisions based on the numbers provided.
That is the sequence of events.

Therefore it is inexplicable to me, that having audited the books of Anglo that Ernst & Young could say that they were "unaware" of the loans between Anglo and Irish Life.
How could those loand have been hidden without the being detected in the managements books which were subsequently audited by E&Y?
They had to have been aware of the loans otherwise they could not have completed the audit.

Ernst & Young and the directors of the Anglo failure to disclose the loans to the shareholders/investors/market is implausible.
Either E&Y are incompetent or they're liars.

All auditors duties lie with giving the reader of those financial statements a truthful and accurate picture of the finances of the company.
That is their sole and only responsibility.

hinault

Institute of Chartered Accoutants have wheeled out Aidan Lambe on tonights "Frontline" programme.

Lambe is trying to defend the indefensible.

Twat.

The Big Red Button

hinault wrote: »

Institute of Chartered Accoutants have wheeled out Aidan Lambe on tonights "Frontline" programme.

Lambe is trying to defend the indefensible.

Twat.

He's not being given a chance to speak at all! It's a pity, because I'd be very interested in hearing what he has to say.

hinault

chatterpillar wrote: »

He's not being given a chance to speak at all! It's a pity, because I'd be very interested in hearing what he has to say.

Regarding what he did say, he was spoofing.

Separately.
An auditor's role is to report on whether or not a company's set of accounts is aligned to the ongoing concern concept.
Meaning that the auditor is duty bound to state in the audit report whether or not a business will remain in business for the foreseeable future ie.next 12 months.

fontanalis

hinault wrote: »

The auditing industry is a shambles.
The audit industry is squarely to blame.

Andersens and Enron.
Ernst & Young and Anglo.

It is important that the uninitiated are aware of the sequence of events concerning an audit.

A company keeps a set of books.
Each year the company prepare the set of the books and give the books to the auditor to audit.

The auditor audits the books as given to them, the auditors makes "audit changes" to the original numbers if required and then after completing the audit presents as part of the statutory accounts presents the income statement/profit and loss accounts and balance sheet for the directors/shareholders/investors to review and to make investment decisions based on the numbers provided.
That is the sequence of events.

Therefore it is inexplicable to me, that having audited the books of Anglo that Ernst & Young could say that they were "unaware" of the loans between Anglo and Irish Life.
How could those loand have been hidden without the being detected in the managements books which were subsequently audited by E&Y?
They had to have been aware of the loans otherwise they could not have completed the audit.

Ernst & Young and the directors of the Anglo failure to disclose the loans to the shareholders/investors/market is implausible.
Either E&Y are incompetent or they're liars.

All auditors duties lie with giving the reader of those financial statements a truthful and accurate picture of the finances of the company.
That is their sole and only responsibility.

At least Ernst & Young won't get work again :rolleyes:

The Big Red Button

hinault wrote: »

The auditing industry is a shambles.
The audit industry is squarely to blame.

Andersens and Enron.
Ernst & Young and Anglo.

It is important that the uninitiated are aware of the sequence of events concerning an audit.

A company keeps a set of books.
Each year the company prepare the set of the books and give the books to the auditor to audit.

The auditor audits the books as given to them, the auditors makes "audit changes" to the original numbers if required and then after completing the audit presents as part of the statutory accounts presents the income statement/profit and loss accounts and balance sheet for the directors/shareholders/investors to review and to make investment decisions based on the numbers provided.
That is the sequence of events.

Just to clarify, auditors do not prepare the statutory accounts. The financial statements, including the Income Statement, Balance Sheet etc are prepared by the company's accountants and then reviewed by the auditors. Any necessary changes are then made by the company's accountants - not the auditors.

hinault wrote: »

Therefore it is inexplicable to me, that having audited the books of Anglo that Ernst & Young could say that they were "unaware" of the loans between Anglo and Irish Life.
How could those loand have been hidden without the being detected in the managements books which were subsequently audited by E&Y?
They had to have been aware of the loans otherwise they could not have completed the audit.

Ernst & Young and the directors of the Anglo failure to disclose the loans to the shareholders/investors/market is implausible.
Either E&Y are incompetent or they're liars.

All auditors duties lie with giving the reader of those financial statements a truthful and accurate picture of the finances of the company.
That is their sole and only responsibility.

I don't know enough about the E&Y/Anglo case to comment on it.

However, when you say that auditors' sole and only responsibility is to give the reader of the financial statements a truthful and accurate picture of the finances of the company - that's not really correct. The auditor merely provides an external, independent opinion on the financial statements which have been prepared by the company. While this is a valuable opinion, and can give some level of assurance to the relevant stakeholders, an audit opinion is not a guarantee and should not be viewed as such. Also, it should be noted that an auditor's opinion only relates to the financial statements themselves - auditors do not endorse/criticise a company's policies, business model etc as part of their report.

CoalBucket

BrownianMotion wrote: »

Considering this poll was posted in the accounting forum I doubt the results will be 'true and fair'.

While the auditors aren't to blame for causing the problems, they are at fault for not identifying them.

I agree, Turkeys don't vote for christmas.

The bankers are to blame for their actions. The auditors are supposed to oversee their actions and report to the shareholders.
IMO The bankers were corrupt and the auditors were inept.

thebman

chatterpillar wrote: »

However, when you say that auditors' sole and only responsibility is to give the reader of the financial statements a truthful and accurate picture of the finances of the company - that's not really correct. The auditor merely provides an external, independent opinion on the financial statements which have been prepared by the company. While this is a valuable opinion, and can give some level of assurance to the relevant stakeholders, an audit opinion is not a guarantee and should not be viewed as such. Also, it should be noted that an auditor's opinion only relates to the financial statements themselves - auditors do not endorse/criticise a company's policies, business model etc as part of their report.

Yes this is my main problem with auditing in that it generally achieves and proves nothing. The company isn't going to hand over information that shows its not doing its accounts properly.

In my experience however, auditing companies sell themselves like they actually will find any and all problems (note not financial auditing experience) and the company requesting the audit sure as hell does.

So I would say the person at fault isn't really the auditor but the auditing company for allowing what they do to be misrepresented.

Oafley Jones

I've a friend who works in E&Y. I remember arguing up to two years ago that there was no way Anglo wasn't a complete shambles and yet up to 6 months before Anglo's collapse he was still saying to anyone who would listen that if he had any money he'd buy shares in Anglo. From what I gather he was involved at some level - low mid level stuff - with auditing them. I still can't figure out whether he was towing the company line or incompetent. I'm not sure which I'd rather believe. Same guy is now working on NAMA for E&Y.

hinault

chatterpillar wrote: »

Just to clarify, auditors do not prepare the statutory accounts. The financial statements, including the Income Statement, Balance Sheet etc are prepared by the company's accountants and then reviewed by the auditors. Any necessary changes are then made by the company's accountants - not the auditors.

The financial statements (profit&loss account, balance sheet) that appear in the statutory reports, are the figures presented AFTER the audit is completed.

You are correct to say that accounts are prepared by the company accountant.
Those accounts are then audited by the company auditors.

If there are accounting errors (incorrect journal entries, issues with regard to level and accuracy of provisions/accruals) resulting from the audit of the accounts, these errors are quantified by the auditor for the company.
These changes are called audit changes.

The company accountant processes whatever audit changes are required in the company profit & loss account/balance sheet, in the company books - to ensure that the company's profit & loss account/balance sheet
agrees exactly with the auditors profit & loss account/balance sheet.

chatterpillar wrote: »

However, when you say that auditors' sole and only responsibility is to give the reader of the financial statements a truthful and accurate picture of the finances of the company - that's not really correct. The auditor merely provides an external, independent opinion on the financial statements which have been prepared by the company. While this is a valuable opinion, and can give some level of assurance to the relevant stakeholders, an audit opinion is not a guarantee and should not be viewed as such. Also, it should be noted that an auditor's opinion only relates to the financial statements themselves - auditors do not endorse/criticise a company's policies, business model etc as part of their report.

The auditors role is to ensure that the financial statements (P&L and Bal.Sheet) truthfully and fully represent the financial position of the company at a given date.
Furthermore the auditor states in the Independent Auditors Report :

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland and are properly prepared in accordance with the Companies Acts, 1963 to 2009.
We also report to you whether in our opinion: proper books of account have
been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Directors' report is consistent with the financial statements.
In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the company's balance

sheet and its profit and loss account are in agreement with the books of account.

With regard to the transfer of loans between Irish Life and Anglo, it is inconceivable that amounts were moved between these companies without it coming to the auditors attention.
The banks statements of both institutions would show the amounts moving in and out of the company bank account.
How were these balances journalled in the company accounts?
They would have had to be journalled.

stepbar

jmayo wrote: »

Seriously i think that is cr**.
If someone with basic knowledge finds something really dodgy or unusual, then it is very probable that it is raised with a supervisor and gets pushed up the chain.
BTW if you are auditing a high profile high net worth account that happens to be one of the top banks, don't tell me they sent in complete wet behind the ears half qaulified individuals. :rolleyes:
Did they hell, some people that knew their oats were in those teams somewhere.
Otherwise it would look very unprofessional to send it low calibre people on an audit of a client of this stature.

It is very unlikely that someone did not spot the directors loans over 8 odd years and then falg to a higher level.
It is like Enron, at best the auditors chose to ignore it since they were looking for other business elsewhere.
At worse someone may have gotten something more, maybe a few thousand golfballs ?

It's well known that most of the new starts in the Big 4 go straight into auditing, do their exams and are either let go or leave for another job (well that's how it used to happen anyhow). I've seen it happen and I know people who did what I described above. You better believe it.... it happened. Back in the day why would you have your best people out auditing when there was deals and money to be made? That's exactly what the Big 4 did... send in the young uns to do the donkey work (perhaps led by an older professional who in turn was managing a few other sites).

The auditors are there to ask questions and lots of them. Trouble is many of them were so wet behind the ears that they didn't know what questions to ask and its not suprising that very little turned up. I believe that in order to be a competent auditor, you must have "had it" from the other side (i.e if you're in auditing a bank you must have worked in some capacity within same). Otherwise how would you really understand what goes on? Now I'm not saying that every company that's audited is crooked, far from it. But one has to have an understanding of the environment that one is sent to audit on some level.

K-9

hinault wrote: »

The financial statements (profit&loss account, balance sheet) that appear in the statutory reports, are the figures presented AFTER the audit is completed.

You are correct to say that accounts are prepared by the company accountant.
Those accounts are then audited by the company auditors.

If there are accounting errors (incorrect journal entries, issues with regard to level and accuracy of provisions/accruals) resulting from the audit of the accounts, these errors are quantified by the auditor for the company.
These changes are called audit changes.

The company accountant processes whatever audit changes are required in the company profit & loss account/balance sheet, in the company books - to ensure that the company's profit & loss account/balance sheet
agrees exactly with the auditors profit & loss account/balance sheet.





The auditors role is to ensure that the financial statements (P&L and Bal.Sheet) truthfully and fully represent the financial position of the company at a given date.
Furthermore the auditor states in the Independent Auditors Report :

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland and are properly prepared in accordance with the Companies Acts, 1963 to 2009.
We also report to you whether in our opinion: proper books of account have
been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Directors' report is consistent with the financial statements.
In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the company's balance

sheet and its profit and loss account are in agreement with the books of account.

With regard to the transfer of loans between Irish Life and Anglo, it is inconceivable that amounts were moved between these companies without it coming to the auditors attention.
The banks statements of both institutions would show the amounts moving in and out of the company bank account.
How were these balances journalled in the company accounts?
They would have had to be journalled.

I'd be surprised if the director loan transaction where that easily spotted. It sounds like this was a regular process done over a few years and the spotlight should fall on the director first. If it can be shown that the auditors had no good reason not to doubt the veracity of the transaction, independent back up etc. there wasn't much they really could do.

As regards going concern, just thinking of property companies, many would have been in say 06 and maybe 07, but wouldn't qualify now. Auditors can't predict the future either, like so many others in 06 and 07.

censuspro

There are two fundamental issues that the Ernst & Young, the auditors of Anglo need to be asked about.

1.The directors loans of €180 million to Sean Fitzpatrick
2.The transfers of €7 billion to IL&P

If E&Y knew of these transactions why did they not report them, or if they didn’t know about theses transactions, why not?

There are very specific company law AND specific tax legislation in relation to directors loans. Prior to commencement of an audit, an audit plan is carried out and level of risk is ascertained. The most obvious level of risk when auditing a bank is the loan book because that is what a bank does, it lends money. The first thing the auditor of a bank askS for is confirmation of directors’ loans and the directors sign a personal letter to the auditors confirming the amount of the loan. If it’s a case that the auditors were given false information then that in itself is an indictable offence and surely that is evidence of fraud on behalf of the directors. If it is a case that the auditors knew and didn’t report the directors loans then that is negligence on behalf of the auditors.

Posters on here argue that an auditor cannot check every single transaction, which is true. However, €7 BILLION is a large sum of money and surely these large sums would have been noticed. Others will say it was done after the year end when the audit was finished, however one of the requirements of an audit is to check PBSE’s (Post Balance Sheet Events) to see if there are any transactions after the year ended that would materially effect the financial statements. Even if this exercise was carried out and it was missed, it would have showed up in the audit the following year.

To make matters worse, E&Y have now been appointed to advise NAMA on loan valuation services. PWC have been appointed to NAMA to provide tax advice and KPMG have been appointed as auditors. All of these firms have done audit and consultancy work for Irish banks, not only that, their clients are the same developers who are having their loans books transferred to NAMA!!! So within the same accountancy firm they are advising Liam Carroll and Bernard McNamara regarding their personal finances and at the same time they are advising NAMA on what to do with the loans. A blatant conflict of interests. You could not make this up.

K-9

The other side of this is, you can't assume fraud was happening, like this thread, now. Even Revenue tax audits cannot assume fraud is going on.

If something is actively being covered up, it is very hard for an auditor to unveil it.

hinault

K-9 wrote: »

The other side of this is, you can't assume fraud was happening, like this thread, now. Even Revenue tax audits cannot assume fraud is going on.

If something is actively being covered up, it is very hard for an auditor to unveil it.

I disagree, k9.

If a money transfer is made into, or out from, a bank account, the transaction has to be journalled ie.it has to be recorded in the companys books of account.
Therefore the loan transactions had to be recorded somewhere in the books of account.
(The transactions in question cannot be ommitted or ignored because the books would not balance)

The question is : were the transactions in question recorded incorrectly (and the auditor just "missed" them) or were the transactions recorded correctly but were not disclosed by the auditor (as they should have been)?

ei.sdraob

K-9 wrote: »

If something is actively being covered up, it is very hard for an auditor to unveil it.

7 billion here, few hundred million there

seriously now? come on

K-9

hinault wrote: »

The question is : were the transactions in question recorded incorrectly (and the auditor just "missed" them) or were the transactions recorded correctly but were not disclosed by the auditor (as they should have been)?

Exactly and to what extent, if any, was this covered up by the directors. If not, the Auditors have serious questions to answer.

Cookie_Monster

censuspro wrote: »

To make matters worse, E&Y have now been appointed to advise NAMA on loan valuation services. PWC have been appointed to NAMA to provide tax advice and KPMG have been appointed as auditors. All of these firms have done audit and consultancy work for Irish banks, not only that, their clients are the same developers who are having their loans books transferred to NAMA!!! So within the same accountancy firm they are advising Liam Carroll and Bernard McNamara regarding their personal finances and at the same time they are advising NAMA on what to do with the loans. A blatant conflict of interests. You could not make this up.

But what is the alternative to these big4 getting contracts like this in reality?

Thats a big part of the problem IMO, there are only 4 options open to large scale companies for audit so its quite easy for a cartel or a "hush-hush" scenario to form around them.

hinault

K-9 wrote: »

Exactly and to what extent, if any, was this covered up by the directors. If not, the Auditors have serious questions to answer.

The auditors will claim that the accounts, as part of the statutory filings, are the work of the auditors.

The directors can claim that it is the role of the auditor to detect fraud.

Both parties have an input to the statutory filings.

Draw the line wherever you wish.
Eitherway, investors/shareholders/market were deliberately lied to.

hinault

Cookie_Monster wrote: »

But what is the alternative to these big4 getting contracts like this in reality?

Thats a big part of the problem IMO, there are only 4 options open to large scale companies for audit so its quite easy for a cartel or a "hush-hush" scenario to form around them.

Fair point.

And with the introduction of more and more accounting standards/guidelines and the requirement for more explicit disclosure, the Big 4 will earn more in fees.



I really think that auditors should be made more liable for the information they put in to the Independent Report.
If they're potentially liable for providing misleading bona fides, they will endeavour to make sure that each and every single accounting entry is checked and double checked.

scr123

The Accounting and Legal professions should hang their heads in shame. We all know they turn a blind eye to what is happening in businesses across the country and we all know if they were to fulfil their obligations to the country and Revenue in particular the economy would collapse overnight. However, the crazy nonsense that went on in the Banks and went uncovered and unexposed by these same professions suggests to me they should be closed down and kids out of primary school take over their functions as soon as possible.
I can understand the economic collapse and the property collapse but for the life of me cannot cope with how highly educated, highly trained and highly motivated people in the Banks allowed lunacy to take over !