It’s been a hectic couple of days \u2014 hence low volume blogging.<\/p>\n
That’s been an opportunity missed regarding Ernst & Young (E&Y) and Lehman<\/a>. It’s also been an opportunity for reflection.<\/p>\n The reality is that there is nothing surprising about what E & Y have done. It seems that a senior partner from an audit form joined a client<\/a>, devised an off-balance sheet accounting ruse, cleared it with his former colleagues, who then signed it off for audit purposes, and it was used thereafter without further question arising to deliberately misrepresent the true nature of the balance sheet of the entity.<\/p>\n That sounds shocking expect for one thing \u2014 this is what happens day in, day out, the whole world over. <\/p>\n This is what securitisation was about.<\/p>\n This is what a lot of offshore is about.<\/p>\n Derivative trading is often intended to achieve such goals \u2014 and most finance directors have no clue what they’re doing when engaging in them, and nor do their auditors.<\/p>\n In issues as straightforward as deferred taxation the balance sheet is knowingly and deliberately misstated by companies and auditors with the connivance of auditing and accounting regulators \u2014 in this case to overstate a liability that will in most cases never be settled \u2014 all to achieve a political objective of conning the world into believing that more tax is being paid than is ever settled..<\/p>\n In the case of fair value accounting myths were created that there were markets in assets for which there was no effective trading.<\/p>\n The E & Y \/ Lehman case is not an isolated incident. It is indicative of a pandemic of abuse by the accounting profession. <\/p>\n It’s an abuse that starts at the very top. The International Accounting Standards Committee Foundation \u2014 the body ultimately responsible for ensuring that accounts showing a true and fair view are prepared says in its constitution<\/a> that its main objective is<\/p>\n to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparency and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users make economic decisions;<\/p>\n<\/blockquote>\n Note the “and other users” \u2014 something that is then blatantly ignored by the International Accounting Standards Board<\/a> when it says that the main users of financial statements are “present and potential investors, lenders and other creditors in making decisions in their capacity as capital providers”. They then conclude<\/a> that because investors are providers of risk capital to the entity, financial statements that meet their needs will also meet most of the general financial information needs of other users.<\/p>\n\n