[fc-discuss] Financial Cryptography Update: KPMG establishes the price of the get-out-of-jail card

iang@iang.org iang@iang.org
Fri, 2 Sep 2005 12:11:51 +0100 (BST)


 Financial Cryptography Update: KPMG establishes the price of the get-out-of-jail card 

                           September 02, 2005


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https://www.financialcryptography.com/mt/archives/000548.html



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The monopoly game of accounting goes on another round.	A few rounds
back, Arthur Anderson was knocked out, and now the KPMG is losing its
houses on the plush side of the board:

http://www.washingtonpost.com/wp-dyn/content/article/2005/08/30/ar20050
83001915.html
http://news.yahoo.com/news?tmpl=story&u=/nm/20050829/bs_nm/accounting_k
pmg_settlement_dc
=====8<=====
Accounting firm KPMG LLP on Monday agreed to pay $456 million and to
cooperate with authorities investigating tax shelter deals. Rival Ernst
& Young LLP remains under grand jury investigation for its role in
selling shelters.
=====8<=====

which works out as $300k per partner for the get-out-of-jail card. 
Given how much each partner makes per year, this looks like no more
than a blip in their yearly income;  the more important question is ...
whither accounting reputation now?

http://www.businessweek.com/bwdaily/dnflash/sep2005/nf2005091_2144_db01
6.htm

Serious Financial Cryptographers have always known that accounting
practices and audits are but a fig leaf of respectibility.  Arthur
Anderson seemed to blow away that paltry covering for the first time,
according to the public's viewpoint.  Above we see that Ernst & Young
are also under investigation, and there is every reason to believe that
they were all doing it, whatever it was.

What "it" was is somewhat apropos - raking in huge fees for shady
transactions.  No matter your views on government, taxes and the
equally shady concept of trading justice that resulted in a fine but no
indictment, what is clear is that the accountants are not serving the
public interest.

Serving the public interest by means of public audits is their being
and meaning in life.  It is the reason they are special, the reason
they have privileges and the reason they can ask high fees.  It's the
reason that the regulator instructs public companies to get audited. 
It's the reason that any difficult hidden thing gets a secret report
from an auditor, for a fat fee.

For this privilege they get to serve the public interest.  It is a very
easy test to apply and equally easy to see that this not terrifically
high standard is not being met by the public auditors.

For this privilege the accountants have earnt huge fees for huge
periods.  We can fairly comfortably agree that they got out their
rewards; no partner at a big N firm could reasonably claim that too
much was asked of them for too little pay.

I have no hesitation therefore in stripping from them any specialness
and calling for the end to KPMG.  And the rest - society needs to move
on and consider other ways in which we audit and confirm to our public
that what we are doing is in the interests of our shareholders.

I know that ignoring these words is easy - and that "jobs are at
stake."  But those are poor excuses for supporting a rotten system. 
Why does a poor job (or worse - basically theft) by the auditors mean
that their jobs must be protected?

Before the veins burst, here's today's ludicrous audit news:

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh
39850_2005-09-01_15-31-19_n01450451_newsml
========8<======
CardSystems auditor completes compliance report
 Thu Sep 1, 2005 11:31 AM ET 
 NEW YORK, Sept 1 (Reuters) - Payments processor CardSystems Solutions
Inc., where a security breach exposed more than 40 million credit card
accounts to fraud, on Thursday said its auditor had completed a report
to payment networks and concluded it complies with industry
data-security standards.
 CardSystems, which handles payments for more than 119,000 merchants,
in July hired AmbironTrustWave, a data security assessment firm, to
review its compliance with payment card industry security standards.
The report was submitted to MasterCard, Visa, American Express Co.
(AXP.N: Quote, Profile, Research) and Morgan Stanley's (MWD.N: Quote,
Profile, Research) Discover on Wednesday, as scheduled.
=========8<======

No mention of what happened to the previous company that did exactly
the same thing - audited their technical systems.  Anyways, back to the
the monopoly game, I wonder who's going to pick up Mayfair?

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