KPMG has announced that it is to stop supplying any other services to its FTSE 350 clients in an effort to maintain the existing framework of auditing which has come under considerable attack, not least because of KPMG's growing list of audit failures.
I think KPMG have called things wrong, yet again. Their presumption is that if only conflicts of interest between auditors and their clients are removed then all will be well again in the audit world.
Well, of course conflicts of interest between an auditor and their client should be removed. That goes without saying. But putting this basic fact right after it has been wrong for too long does not solve the problem.
The problem is much deeper than that.
The problem is inherent in International Financial Reoorting Standards that assume that accounts are only produced for the benefit of financial markets. That is wrong.
And the problem is in auditing standards that assume that a supposed ‘true and fair view' can be given on the basis of checking whether IFRS has been correctly followed, irrespective of the consequnces.
These two points are the issues that really matter in this dispute over the future of auditing. The fact is that accounting and auditing have been corrupted to adopt these standards, very largely by the Big 4 firms of accountants, and for the sole apparent benefit of their clients. This is what matters.
The conflicts of interest KPMG is getting rid of should never have been there in the first place. Righting that wrong changes very little.
Re-establishing proper accounting, subject to audit, for the benefit of society at large is something that we cannot presume the Big 4 will do, precisely because they corrupted the system and it is not in their interests to restore it. Only government can do that.
KPMG's move should be seen as the sop it is.
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Excellent and too true – there is a much more profound cultural and ethical problem with these professional firms which has been ignored and bypassed for decades. At the same time, the positive ethical story of many smaller accounting firms has hardly ever been celebrated. From my experience of the Jain and Hindu community, where accountants are at least one per family, often more, there are amazingly rich real life stories of how they uphold the ethics and often say no to clients. And many Jains and Hindus who work for commercial organisations also carry their ethics and integrity with them. We conducted a ‘Chopda Pujan’ at Diwali which means opening new books of account in reverence to Laxmi the goddess of wealth, praying for empowerment to do good for whole of society. I could write whole books on this theme – here is one http://www.diverseethics.com/atul-blog/ethical-finance-a-jain-perspective
Thanks Atul
Your work is invaluable
Thanks Richard, here is a video of a Chopda Pujan I reported on in Birmingham – https://www.youtube.com/watch?v=_NGjn2BJDOY – it gives you a flavour of what is happening in our communities to retain a positive ethical culture and values.
I see on Bloomberg that UBS is being sued in the US for 41 billion in MBS sub-prime before 2008 that it’s own staff called ‘leprosy spores’. Auditing in a very broad sense across all kinds of evaluation is in a poor state, from company accounts to university quality and various regulators. I can’t see change coming as integrity is shot through and no one is ever culpable.