Are the big four auditors too big to fail? Agnes Crane makes a strong case that they are, in the wake of a very tough report from the Public Company Accounting Oversight Board about Deloitte. The problem is that the PCAOB has no real teeth: with the number of auditors already far too low, at four, no one can afford a potentially-fatal attack on any of them. And that gives each of the Big Four effective impunity when it comes to mistakes and lack of professionalism.
As Caleb Newquist notes, most financial reporters cover the accountancy industry “once in a lunar eclipse on the winter solstice.” So it’s fantastic to see Bloomberg’s Jonathan Weil coming out with two incisive, hard-hitting columns in succession on the subject.
Say what you like about Andrew Cuomo, he gives good complaint:
E&Y substantially assisted Lehman Brothers Holdings Inc., now bankrupt, to engage in a massive accounting fraud, involving the surreptitious removal of tens of billions of dollars of securities from Lehman’s balance sheet in order to create a false impression of Lehman’s liquidity, thereby defrauding the investing public…
Andrew Cuomo has decided, reports the WSJ, to file civil fraud charges against Ernst & Young in the waning days of his tenure as New York’s attorney general — news which has been received with delight by Yves Smith, on the grounds that it might strengthen a criminal case against Dick Fuld.
Should banks mark their loans to market? The issue — which flared up briefly at the height of the financial crisis, when everybody was wondering whether many of America’s largest banks were insolvent — is back in the headlines, thanks to FASB’s proposed rule change, which Tracy Alloway calls “mark-to-mayhem”.
As the SEC investigates the question of just how many banks were abusing Repo 105, Vipal Monga today points out that abusing Repo 105 is exactly the same thing as using Repo 105: there’s no conceivable innocent use of this particular part of the accounting-standards rulebook.