Friday, November 26, 2010

Were US Auditors Told to Fudge Opinions of TBTF Banks?

Via Naked Capitalism.
Francine McKenna is shocked that investigations in the UK have revealed that major auditors were told to make wobbly banks look healthier than they were. Specifically, they issue “going concern” opinions because they were told the banks would be backstopped.
One can only assume the accountants were brought in the loop with the aim of influencing their published reports. And one must further assume that anyone who dared to ask reasonable questions (”How can you be certain bailouts will go through when they’ve become controversial?”), they would have been told a tad more directly that they ought to take it as a given that the rescues would take place (although I doubt anyone would have needed to be direct, the auditors would presumably be delighted to issue opinions that would keep major meal tickets in good favor with the financial markets). From McKenna (hat tip Richard Smith, emphasis hers):
Leaders of the four largest global accounting firms – Ian Powell, chairman of PwC UK, John Connolly, Senior Partner and Chief Executive of Deloitte’s UK firm and Global MD of its international firm, John Griffith-Jones, Chairman of KPMG’s Europe, Middle East and Africa region and Chairman of KPMG UK, and Scott Halliday, UK & Ireland Managing Partner for Ernst & Young – appeared before the UK’s House of Lords Economic Affairs Committee yesterday to discuss competition and their role in the financial crisis….
The Lord’s Committee was more interested in questioning the auditors about the issue of “going concern” opinions and, in particular, why there were none for the banks that failed, were bailed out, or were nationalized.
The answer the Lord’s received was, in one word, “Astonishing!”
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