The Big Four: Too Few to Fail

Via The Accounting Onion.

But, none of these solutions fix the root causes of the problems with the auditing profession. While reading an report in NYT a couple of weeks ago about gasoline engine manufacturers in Japan (perhaps the best in the world) that are struggling mightily to cope with the inexorable market shift toward hybrid and electric vehicles, my one-track mind wandered back to financial reporting: historic cost accounting is to a gasoline engines as current values are to electric vehicles. But, while governments are firmly behind the mass adoption of electric vehicles, the EU, IASB and the U.S. Federal Reserve are actively discouraging financial reports to shareholders that are powered by state-of-the-art measurement (see, for example, IFRS/GAAP) of financial instruments.

The Big Four owe their lock on the largest companies in the world to the complex accounting rules rooted in 1930's concepts. But the sad irony is that nobody is as happy as they could be with the current state of affairs. The public has learned to distrust auditors and to fear a systemic financial crises triggered by the collapse of one of the Big Four. The audit firms have been forced to focus on the least profitable service they offer due to regulatory restrictions on non-audit services designed to maintaining at least some hazy appearance of "independence."

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