[Plura-list] The Big Four accounting firms are one (more) scandal away from collapse

[Cory Doctorow]

Read today's issue online at: https://pluralistic.net/2022/11/29/great-andersens-ghost/
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Today's links

* The Big Four accounting firms are one (more) scandal away from collapse: Mutually assured destruction at the heart of the economy.

* Hey look at this: Delights to delectate.

* This day in history: 2007, 2012, 2017, 2021.

* Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading

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🇬🇱 The Big Four accounting firms are one (more) scandal away from collapse

One of the wildest features of the crypto wipeout is that all of these "multi-billion-dollar" firms never bothered with an independent audit, and they all turned out to be lying about their balance sheets. Amidst this carnage, it's easy to forget that the Big Four accounting firms are terrible enablers of fraud, and the fact that they sign off on your books is no guarantee that you're not a giant scam waiting to implode.

This is just *wild* to consider. After all, independent auditors are the lifeblood of capitalism. Rich people *really* need to know that the people they trust with their money aren't lying about their finances. Usually rich people get their way.

But not with accounting. Accountancy has dwindled to four massive, structurally important, terminally conflicted companies: EY, KPMG, PWC and Deloitte, and all four make more money selling "consulting" to companies than they do for signing off on their books.

https://pluralistic.net/2021/02/18/ink-stained-wretches/#countless

That means that the Big Four routinely sign off on fraudulent books, because a failure to make nice with companies that are cheating the taxman and/or their investors and/or their creditors will cost the Big Four those fat consulting contracts.

Besides, the Big Four have a sweet gig: when they sign off on fraudulent books - as all four did for Carillion, the company that went bust in 2018 after billions went missing - they are the only companies big enough to oversee the bankruptcies. All four made millions off of Carillion's bankruptcies.

Shorn of any consequences for wrongdoing, the Big Four are hotbeds of corruption. Who can forget when KPMG's top management was fined millions...for helping their auditors cheat...on *ethics exams* (!!!!).

https://pluralistic.net/2021/06/04/aaronsw/#crooked-ref

There is a contradiction at the heart of "consulting" and auditing. The consultant's job is to help a company obscure its bad deeds - for example, helping it hide its tax fraud, or its wage theft - while an auditor's job is to bring transparency to a company's financials. These two activities are fundamentally incompatible with one another, and the fact that the Big Four make more money from cooking books than from uncooking them means that they forever lurch from scandal to scandal.

Those scandals are getting worse, and if a very big one should break, it could bring down the whole *sector*, and with it, large swathes of the economy. Writing for The Dig, Jim Peterson describes the system risk:

https://thedig.substack.com/p/tipping-point-the-financial-fragility

The problem lies in the fact that the Big Four are "voluntary private partnerships to which individual accountants commit their energy, reputations and personal capital." If a scandal threatens the business, partners who quit might get away clean, while those that stay behind will be mired in scandal and financial ruin.

That means that when disaster looms, each partner is better off individually running for the doors, even though a disciplined stay-and-hold posture might let the firm weather the storm. This is exactly what happened at Arthur Andersen during the Enron collapse, and the risk to other firms was identified by "Study on the Economic Impact of Auditors’ Liability Regimes," a 2006 EU report:

https://www.iasplus.com/en/binary/europe/0610audit.pdf

The thing is, each partner at a big firm knows exactly how much dirty laundry they have personally buried in the company's garden, and they have well-founded suspicions about what their partners have buried out there, too. When someone starts digging, they're all gonna scarper.

Which is to say that if a firm faces sufficiently steep litigation damages or enforcement penalties, it could precipitate a sudden collapse of one of the remaining Big Four firms. That wouldn't just be bad news for the firm - its clients would struggle to land another large auditor to sign off on its books.

Remember, most of the world's auditing capacity has been gathered into four giant, brittle, opaque, compromised firms - if one of them goes bust, the remaining Big Three won't have the capacity to take on its orphaned clients.

Peterson: "another collapse would strand significant numbers of the world’s large public companies, leaving them unable to procure the audit opinions required for their securities listings and regulatory compliance, from any source and at any price."

Peterson's written a fascinating-sounding book on the structural problems with monopolized accounting, "Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms," which is in its second edition:

https://www.emerald.com/insight/publication/doi/10.1108/9781787147003

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🇬🇱 Hey look at this

* The Consequences of Radical Patent-Regime Change https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3798363

* Jansen's Linkage https://www.youtube.com/shorts/PBuOBGfEzXk (h/t Hackaday)

* The Spectacular Life of Octavia Butler https://www.vulture.com/article/octavia-e-butler-profile.html (h/t Nelson Minar)

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🇬🇱 This day in history

#15yrsago Science Fiction Writers of America reinstates E-Piracy Committee — new name, same chairman https://memex.craphound.com/2007/11/29/science-fiction-writers-of-america-reinstates-e-piracy-committee-new-name-same-chairman/

#15yrsago Universal Music CEO’s fears illustrated in funny webcomic https://web.archive.org/web/20071130023109/http://hijinksensue.com/2007/11/29/robots-are-everywhere-and-they-eat-old-peoples-medicine-for-fuel/

#10yrsago America’s “Six Strike” copyright punishment system on hold until 2013 https://torrentfreak.com/six-strikes-anti-piracy-plan-delayed-till-121128/

#10yrsago Big Tobacco will have to run a national advertising campaign apologizing for lying about health risks from smoking https://web.archive.org/web/20131031154351/https://www.theguardian.com/world/2012/nov/28/tobacco-companies-lied-smoking-danger

#10yrsago Bill O’Reilly-watching climate-change-denier is moved to tears by polar melting documentary https://www.youtube.com/watch?v=Xzw1dZNWiL8

#10yrsago Grey Album remastered by golden-eared engineer https://www.forbes.com/sites/leorgalil/2012/11/28/the-story-behind-the-newly-remastered-version-of-the-grey-album/?sh=7d997c5e8775

#5yrsago Net Neutrality is just for starters: municipal networks are the path to paradise https://www.wired.com/story/net-neutrality-fiber-optic-internet/

#5yrsago Bernie Sanders and Elizabeth Warren introduce a bill to provide $146B in aid to Puerto Rico and the Virgin Islands https://theintercept.com/2017/11/28/bernie-sanders-puerto-rico-elizabeth-warren-propose-146-billion-marshall-plan-for-puerto-rico/

#5yrsago Incentives matter: America’s for-profit medical industry thrives on massive wastage, unnecessary procedures, overbilling and overtreating https://www.propublica.org/article/a-hospital-charged-to-pierce-ears-why-health-care-costs-so-much

#5yrsago US Army doxes itself, reveals $100 million NSA spy program that got flushed before it was ever used https://www.ibtimes.com/army-spent-100-million-intelligence-system-it-never-used-nsa-leak-says-2620733

#5yrsago Student debt: more people, paying more money, and mounting year on year https://jacobin.com/2017/11/student-debt-data-higher-education

#5yrsago Mass incarceration and disenfranchisement of brown people was the key to GOP control in Alabama, but thanks to criminal justice reform, black people can vote against child-molester Roy Moore https://www.salon.com/2017/11/29/roy-moores-poetic-justice-could-alabamas-criminal-justice-reform-haunt-gop/

#5yrsago Morgan Stanley, with a long rapsheet for corporate crimes, says Jeremy Corbyn holding them to account would hurt them worse than the worst Brexit https://www.theguardian.com/politics/2017/nov/27/corbyn-becoming-pm-is-worse-threat-to-british-business-than-brexit-says-bank">

#5yrsago Comcast flushed its 3 year old net neutrality promise down the memory hole the instant the FCC announced its plan to allow network discrimination https://arstechnica.com/tech-policy/2017/11/comcast-deleted-net-neutrality-pledge-the-same-day-fcc-announced-repeal/

#1yrago The once and future mass-resignation and what it means for working people https://pluralistic.net/2021/11/29/ordinance-of-labourers/#we-all-quit

Colophon (permalink)

Today's top sources: Naked Capitalism (https://nakedcapitalism.com/).

Currently writing:

* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. (92849 words total) - ON PAUSE

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* The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. Yesterday's progress: 903 words (66925 words total). FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

* The Internet Con: How to Seize the Means of Computation, a nonfiction book about interoperability for Verso. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

* Vigilant, Little Brother short story about remote invigilation. FIRST DRAFT COMPLETE, WAITING FOR EXPERT REVIEW

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Currently reading: Analogia by George Dyson.

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Upcoming appearances:

* Conversation with Tim Wu, Informed/Knight Foundation (Miami), Nov 30
https://informed22.interkinnect.com/

* Chokepoint Capitalism: A Conversation/Northeastern University (Boston/webcast), Dec 5
https://northeastern.zoom.us/webinar/register/WN_SpHa1dszSZWPzdLUdlbQcA

* Library Learning Experience/American Library Association (New Orleans), Jan 27-30
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* Australian Digital Alliance Copyright Forum (Canberra), Feb 17
https://digital.org.au/2022/11/08/doctorow-giblin-first-speaker-announcement-ada-forum-2023/

* Antitrust, Regulation and the Political Economy (Brussels), Mar 2
https://www.brusselsconference.com/registration

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* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59 (print edition: https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

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