Posts Tagged ‘auditor rotation’
If a judgment at trial were big enough, it could mean the end of a large firm. Writing on August 13th at Market Watch, Francine McKenna explains PwC faces 3 major trials that threaten its business.
That threaten its business phrase in the headline actually means could take down the entire firm.
There are three major cases, each with a serious enough impact, that an adverse ruling in any one could take out the firm. One is in court now, another expected next February, with the final one in court within a year.
Work with me as I try to process through the cases. Here is the thumbnail version.
Two lawsuits over one client
Taylor Bean & Whitaker Mortgage Corp allegedly generated massive amounts of fraudulent loans, a large portion of which were sold to Colonial Bancgroup. Both companies failed during the financial crisis.
PwC audited Colonial Bank and allegedly did not discover the bad loans that their client, Colonial Bank, bought from PwC’s non-client Taylor Bean.
The post “Re-Structuring the Audit Profession: The UK’s Competition Commission Hunts the Woozle” by Jim Peterson discusses weaknesses in research behind the Commission’s conclusion that mandatory auditor rotation is necessary. He says:
Diligent digging through the Commission’s augean piles of paperwork makes clear that its ostensibly supportive “research” ranges from the shallow and irrelevant to a results-driven reflection of its confirmation bias.
Wow. Let’s unpack that:
I started a discussion here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits.
Let’s take two side trips. First, to look at one other way we can make bad decisions. Second, I’ll ponder how the halo effect could come into play in other areas.
Another danger – making decisions when hungry
Dr. Tom Selling offers hypothetical resolutions to how mandatory auditor rotation might play out when a bank is sitting on a lot of bonds that are only worth half of face value.
Jim Peterson points out several rather severe problems with mandatory firm rotation.
Mandatory Auditor Rotation – The PCAOB Sails Off the Charts into the waters where
the legend written on the old flat-earth maps – that beyond the horizons of ignorance, (says) “there be dragons.”
PCAOB issued a concept release to open discussion of mandatory audit firm rotation.
The Journal of Accountancy has some background at PCAOB Opens Discussion on Audit Firm Rotation.
The concept release is here.
P.S. I try not to release more than 1 post per day, but have a bunch of drafts I want to get posted, so here is #2 for the day.
PCAOB will meet to discuss a concept statement about asking for comments on maybe requiring mandatory firm rotation.
Still quite iffy. PCAOB is thinking about maybe asking for reaction to the idea. A long way from implementation, but it is the next step on that path.
John Hufnagle has a few more words on the topic at Audit Firm Rotation – The Train Is Starting Its Engine. Gotta’ love the title of his post!
I think it is a bad idea. Read the rest of this entry »