Married to an accountant, and her words are echoing in my head (loudly): "The purpose of an audit is not to discover fraud!" An audit is a written opinion on the reliability of a company's financial statements (my words this time). It is not an opinion about the company's business model, ethics, or future viability. Saying, "the auditors should have caught that" misses the point of an audit (a financial audit, anyway).
I think people may have conflated these auditors' jobs with that of, say, an auditor from a government entity like the IRS whose job duties can include discovering fraud.
Several of the concerns raised in the article didn't related to frauds which the author felt should have been found, but with mis-statements of financial affairs, which should theoretically be commented on by the auditor (the audit statment will generally confirm that the accounts present a "true and fair view" of the companies financial affairs).
So if an organization is taking undue risks and not presenting them in the accounts, the auditor should make comment on that. In the example of HBOS, that could have been that they were understating the risk of bad debts and therefore had not provisioned sufficient reserves to address that risk.
The suggestion of the article is that they don't do that due to a cosy relationship with their clients.
It's hard to argue that there is an issue in the general case, auditors are paid by their customers, and therefore have an incentive not to rock the boat.
The counterweight to that is meant to be the personal liability of the partners in question should there be a legal issue resulting from an audit, however I'm not aware of many suits against big-4 partners relating to collapses from the financial crash...
The difference is one of scale. For example, a Walmart sized company could easily have some fraud going on the scale of a couple million dollars - the financial statements are considered to be materially correct (i.e. in that investors would not consider numbers off by a couple million to be a big deal), but there would still be fraud going on.
You have to understand that the underlying concept of audit that a small team of auditors is responsible for ensuring that a huge (relatively) company is going about things correctly - there's no way to obtain a 100% assurance with that scale of manpower, and there's no appetite from companies to significantly increase the audit fees to obtain that level of assurance. Instead, a sampling/risk-based approach is taken in order to ensure that there cannot be a large error within the financials.
No, all testing is down all the way down to 'reality'. But testing is statistically scaled to detect large errors. The threshold for 'large' shifts with how large the audited company is. i.e. a couple million dollars is a rounding error at Walmart.
Additionally, pretty much 90% of an audit flows through a limited number of client contacts. Audits are not designed to defend against a concerted effort to prevent the auditors from seeing 'reality' (i.e. un-doctored documents), due to the manpower requirements to validate information at that level.
Conceptually, it's the difference between 'I-trust-you-but-I-need-to-check-that-you-did-your-homework' and 'Trust no one, everything you see is a lie'.
>The auditors don't look at the first mapping "reality -> accounting books" but only at the second one "accounting books -> financial statements"?
That's not entirely correct. A good portion of SOX audit efforts in the US, for instance, is spent on examining configuration of the various systems on which financial reporting is dependent (e.g. examining exactly how segregation of duty controls are implemented in the ERP system). A good portion of time is also spent examining if human-executed processes (e.g. employee on boarding/off boarding, granting permissions to data and financial system capabilities, manual review of backup job reports, etc) are actually being carried out in a manner that complies with the organization's SOX controls.
Think of it as the difference between undergoing code review versus trying to find instances of malware and hacking on a person's computer.
An auditor makes sure that when GE releases financial statements, it's the same kind of thing as when Ford releases financial statements. They're making sure that when a manager at the factory gets equipment on an installment plan that the company is going to report that as debt, rather than pretend its a rental agreement (and when it's one over the other is complicated which is why you need accountants).
If investors and creditors are going to get any use out of financial statements, Ford has to prepare its financial statements in the same way and according to the same principles that GE does. In order to make sure they're doing that, someone (an auditor) has to periodically make sure they're doing that.
What might show up on an audit is if the accounting department is inherently dysfunctional and not keeping proper records. What they're not going to do is figure out if someone is intentionally trying to deceive an auditor. Accountants are experts in how you're supposed to prepare financial statements so that everyone follows the same standard of what should be reported as what. But unless they're specifically forensic accountants, they're not private investigators uncovering crimes.
Also, I could have phrased it better as "assurance that the company's financial statements accurately portray the activity in their accounting ledger(s)." An audit is about matching the financial statements to "the books" rather than looking for impropriety.
Audits also check that the book's transactions are correct, but this is done through a risk based approach. In my opinion, most practitioners do not understand risk quite well enough.
So is your wife's view that KPMG had no responsibility to further investigate or report on the irregularities their audits were turning up in HBOS's accounts of their loan risks? What is the value of their "opinion on the reliability of a company's financial statements," if that's the case?
This. An audit's goal is to determine whether the accounting systems and processes at a company are reliable. This is why auditors will test and document the internal controls of a business in the summer to make sure the controls are working properly. Then the audit rolls around, they can use what's called a "reliance strategy" which is based on the fact that the internal controls are reliable and working. They collect documentation and select a statistically representative sample of transactions, but analyzing the minutiae looking for fraud is not the goal. Auditing is about studying accounting systems.
The accounting firms do fraud examination as well, but that is a wholly separate business than audit.
"It is not an opinion about the company's ... future viability."
This is incorrect. Financial statements are prepared on a 'going concern' basis, except where management is planning to liquidate the company's assets. When these accounts are audited, the auditors consider whether the company is likely to be able to continue on its current path (i.e. without becoming insolvent, or raising additional capital beyond that already committed). If that future looks like it will be less than a year, then the auditor will include a 'going concern note' in the audit opinion.
So they definitely look at future viability.
Sources:
- Am an accountant and have engaged external auditors
The reason everyone misunderstands this and thinks that a clean bill of health from the accounts means there is little or not fraud going on, is that the accounting field believes it is in its own best interests if the public has this misunderstanding, and so has decided to not explain to it what is really going on.
Let me say some more about this, since it is an example of something that is going really wrong today.
When the economy crashed in 2007, a great many people said the financial industry is all crooked. Many in the industry said that their own branch was honest and responsible,and that when the housing bubble was going on, they had looked at it as an example of the sort of bad finance they themselves would never practice.
But the thing is, if most of the finance people saw the bubble fraud for what it was, why didn't they all speak up and warn the nation? I say it was because they were too focused on making money in their own field, and felt no responsibility to the society as a whole.
That is what is going on in the accounting field. They know there is massive fraud,and many practices that may not be fraud, but are bad for the economy and the world, but they don't explain it because it would get in the way of their making money doing something technically honest.
You know, a society like ours can function well only if everyone looks at the bigger picture, and not at just a narrow definition of what they are being paid to do. Does anyone really disagree?
I knew that phrase was going to bite me! See my reply above, where I clarify that "reliability" is better said as "reliability as a summary representation of our books."
that's the central conflict of interest revealing itself right there (of auditors being paid by their client). it's in the best interest of the auditor to ignore potential fraud so as to have plausible deniability in any legal actions.
while financial audits are primarily focused on how good the numbers match up and how well the controls in place help to do that, an audit wouldn't be done if it weren't for the potential for uncovering fraud up and down the hierarchy.
forensic accounting is also a thing, outside of government.
Have you been talking to my wife today? Because she reminded me of forensic accounting as soon as I got home. Yes, that is a thing but it's not part of a normal financial audit (at least not in the US).
ha, no i haven't been, but you're right that forensic auditing isn't normally included in ordinary audits. an honest auditor will recommend one however, if they see something fishy in the regular audit.
I think the side consultancy businesses are a big problem. Accounting firms should be banned from providing any services other than accounting. This is currently the case in the US for law firms and it is widely accepted that this rule limits conflicts of interest.
It is just far too easy to make a bribe with consulting services. There is no good way to measure the real value of consulting services, and their cost can be massive. If a crooked CEO gives his accountant bags of cash to cook the books, he may be caught and both the CEO and the accountant can be sent off to jail. If a smarter crooked CEO instead hires his accountant's accounting company to a 100 million dollar consulting contract, in exchange for cooking the books, good luck proving a bribe took place. The accounting firm will surely put in a hundred of consultants on the contract and they will surely produce long reports with stacks of technobabble and graphs. Who is to say how much that is worth.
I worked at a Big 4 firm almost 10 years ago and I remember the rules being so strict that our firm had to choose if consulting or audit engagements were more valuable to a particular firm because they could only choose one. Also, when you hit Manager level at a firm, you would have to enter all of your public stock holdings into a system so they could make sure you don’t get stuck on a project with a client where you hold your stock. On top of all that there was very extensive annual compliance certification every year that everybody at all levels had to complete.
The Big 4 doesn’t joke around with this stuff. If an employee or partner went anywhere near the conflict of interest you suggested, they’d promptly be shown the door and probably face other repercussions.
In the US, the Sarbanes-Oxley Act [0] is in place to prevent just that and maintain independence between conducting an audit or providing consulting services. Similar other regulations exist in Canada [1] and other nations. The Big Four and other firms that are subject to these regulations often do one or the other with clients. It is not common for a firm to be the financial auditors and the provider of consulting services to the clients.
FWIW I don't think companies are allowed to purchase consulting services from their auditor, specifically because of this conflict of interest. In my experience, companies will have one of the big four as their primary auditor, than use some combination of the other three for consulting (in addition to MBB or any other firms).
In no way defending the value of these services though - their primary function is to shift culpability off of the executives IMO
“Have the ‘big four’ firms become too cosy with the system they’re supposed to be keeping in check?”
Yes. This was clear in 2001 during the Enron scandal. Which by the way triggered the collapse of one of the then-“Big Five” and created the “Big Four”. Nothing has substantially changed.
If anyone should have known about Enron, it was McKinsey. They were all through that place, Arthur Andersen just looked at the financial reports. AA collapsed and the government went after them, but the Supreme Court vacated AA's conviction on the grounds that the instructions given to the jury were so vague the jury could have believed AA thought they were doing everything right but still voted to convict. Since the firm was destroyed, no one bothered to retry the case.
And I don't know why you say nothing substantially changed, Sarbanes-Oxley came out of that and accounting students are beat over the head with the lessons from Enron and what changed.
Plus, Arthur Andersen Consulting still exists as Accenture, but they were separate companies at that point. (Accenture was actually pretty psyched because they had nothing to do with Enron, but when AA accounting and AA Consulting broke up they had a deal where the more profitable business would send a cut of their profits to the other company. Since consulting is always more profitable, AA Consulting was looking for a way out of that deal when AA accounting imploded.)
Andersen used to have two main divisions. Arthur Andersen did accounting and audit, Andersen Consulting did management consulting and professional services.
After Enron, Arthur Andersen folded. The partners of Andersen Consulting rebranded their business as Accenture.
Arthur Aderson and Anderson Consulting operated separately under Andersen Worldwide Société Coopérative since 1989. The companies formally separated in August of 2000, and the Accenture name was announced in January, 2001.
The Enron scandal broke in December, 2001.
Accenture's timing proved fortuitous, but coincidental.
I have lots of friends who work for the big 4 firms. I think the biggest worry is that most of the people doing the actual audit procedures are so inexperienced and have no long-term goal of staying with the firm. When you talk to them they talk like they're at grad school - "I'm just going to stay here for three years to get my CPA and experience then I am going to the private sector".
If that is your mentality, are you really going to try to dig up a bunch of issues that will cause stress for you?
I'm on the consulting side at a B4 and what you're saying is true from the experience of my friends working in audit. The manager level and above should be checking the work quality, but they also have to balance client relationship building (which will advance their careers) with reporting potentially negative results from analysis.
Side note: for anyone looking for a miserable career, choose auditing at a B4. It's a rare combination of overworked and underpaid that has basically everyone racing for the door after a year or two.
You forget the multi level sales scheme that has everyone dreaming of becoming a partner and living the good life. Similar to a startup you are taking lower pay to build value-less equity in the hope you will get to the top and cash out.
insurance, auditors, government regulation, government backed loans. All have their own problems with this.
I know in mortgages, appraisers are randomly selected. Where as before they were selected by the mortgage company for what value they could get for the house. The problem now is they have no accountability to anyone.
part of the problem in health insurance consumers aren't price sensitive so prices just keep going up. (obviously they're are more problems that that)
Appraisers are a bad example. I think most people would be shocked at exactly how many appraisals come in exactly at the contract price. You can't tell me something's not influencing them, even if it isn't direct pressure from a lender.
Real estate appraisals are mostly on the basis of what other similar houses have sold for. This is the same process that the realtor uses to determine an asking price. Not surprising they are generally pretty close. The last thing a realtor wants is for a sale to fail to close because the appraisal is too low.
I didn't say anything about asking prices. I said "contract prices," which is the final agreed-upon price for the house after an offer is accepted. Even if the asking price is higher or lower than the contract price, it's typical for the appraisal to come in right at the contract price. The appraiser knows this value going in, and it's pretty typical for the appraised value to be exactly the contract price. This is, at least, a very interesting coincidence.
For appraising anything of serious value a better algorithm would be to have an odd number greater than 2 write up detailed appraisals including 'why' for decision points. Then any values deviating greatly from the norm would be reviewed.
Depending on the noted 'why' the differing reviews had different outcomes either further investigation (focusing on missed details) or followup for a bad or under-trained reviewer would occur. The reviews reflecting the reality of the appraised item would be mean-averaged to find a 'typical market value'.
> part of the problem in health insurance consumers aren't price sensitive so prices just keep going up. (obviously they're are more problems that that)
The prices are essentially unknowable until you've received care, provided you even have the luxury of trying to do comparisons.
>I know in mortgages, appraisers are randomly selected.
Not sure about that - the bank that financed my last mortgage employed the appraiser as full-time member of staff. The appraisal exactly matched the contract. I do find that fishy, but apparently not against the rules.
The purpose of the appraisal is to determine the loan-to-value ratio. As long as the appraisal is at least the required number, they're fine. The appraiser is basically saying, "in my opinion the property is worth at least $X.” Not that it might be not be worth more.
Seems like such an exchange could also insist that the companies listed on it submit to independent audits paid for by the exchange. Well, the listed companies would still pay for the audits through the listing fees, but the auditors would report to the exchange. Seems like this could align the incentives better: the exchange wants to attract investors, so they want to be able to provide additional assurance that the companies listed there are sound.
UK financial auditor here. Putting in a low bid for an audit engagement is considered a breach of professional ethics. You might have an incentive to do less work and gloss over things if you're on a very tight budget. So it's hard for competition to bring fees down.
Grant Thornton, BDO, and RSM are the next step down. There are a few other international firms and then there are a large number of international alliances.
The second tier firms operate very similarly to the Big 4 but are an order of magnitude smaller. They'll do audit work for public companies, just not very big ones. Or they'll do pieces of work for bigger firms. But companies can still be public with revenues of only a few hundred million and they'll be far more price sensitive than Google or Goldman.
Just like in cloud computing or AI scale has serious advantages for accounting firms and it is difficult and expensive to try to make the jump to the top tier. Better to stay in your target market in terms of client size, geography, and what price you charge, than to try to drastically change your business. Far too likely to lose your existing business and not succeed in the new one.
And we're back to the question at least as old as ancient Rome:
Quis custodiet ipsos custodes?
("Who will guard the guards themselves?")
The very structure of large accountancy needs to be overturned, as today, the primary incentive for the big 4 is to preserve their client relationships -- that is the side on which their bread is buttered. This means applying their stamp of credibility, not finding and highlighting troubles, especially fundamental/systemic/existential troubles...
And when the problems have systemic implications, and are the result of policies/actions from those at the top, with whom the accountants are golfing?
This was the point of the article -- accountancy was supposed to provide a guard function -- checks and balances. Now, it is merely a compromised credentialing service.
Don't forget the accountancy-created problems, like the various exotic means used to avoid taxation.
It had always seemed odd to me that a company providing advice about essentially laundering money at scale also is the arbiter of truth for accounting principles!
No, they are not a necessary consequence of compulsory taxation. There is no necessity to create any exotic tax reduction scheme.
They are created by over-financialized MBAs trying to evade their company's obligations to society.
If you have a real plan for to effectively run a complex society without compulsory taxation to implement necessary collective goods (roads, policing, schools, defense, etc., etc, etc), I'm all ears, and I'm sure so are many others.
Simple tax laws are easy to enforce and leave no room for creativity.
They also leave no room for "cheap" campaign promises and new initiatives that politicians can announce and display to the media (repeatedly). We'll give a tax credit for low emissions vehicles to save your children's lungs and the planet! An incentive to finance homes for nurses!
Tax is just code. Poorly architected code with lots of documentation that obfuscates rather than illuminates.
Politicians love to nudge through the tax system as it seems cheap, costs are obscured as, and there's no project to fail like there is if you try to build something. You end up with perpetual scope creep and "minor" additions.
Then you get people politicizing the outcomes - "bad people" are taking advantage of a good program, or a "bad company" isn't paying as much as someone thinks they should in an ideal world. If you are going to live in a nation of laws rather than the whim of some functionary you need to let everyone do what is legal, rather than just preferred individuals or classes.
Totally agree that politicians like to over-complicate and obfuscate tax code and other things, and that tax code is an insanely complex mess. Certainly should be fixed.
Yet, it does not follow that similarly elaborate non-payment near-scams (& felonious schemes) are a necessary feature.
An overly complex tax code is a necessary prerequisite, but not a sufficient condition. for that, you also need scheming MBAs & accountants.
Many people would dispute elements of your "necessary" lists, especially Austrian economist and Objectivists (I'm in the latter camp).
Also, many people have proposed alternatives for funding legitimate Government functions without coercion, and relying on charity for the rest (like education) in cases where people can't afford them.
"Many people"... OK. Sure the "Austrian economics" crowd is out there. Yes, they have a point about avoiding hyperinflation, but also often oversimplify.
In what country has a modern complex society been actually run without actual coersive tax?
In what society have complex and costly ventures like an entire modern education, defense road system been done with it? Any real, hard examples?
Abstract ideology is lovely, but is not a practical govt that manages to build the basis for an advanced and advancing society
Consider where this logic would take you if you applied it to all spheres of life. There would never be experimentation, innovation, or in fact development of any kind.
Coming back to the Objectivist angle, there's a great passage from Atlas Shrugged that covers this:
=====
"Then what on earth do you know about Rearden Metal?"
"That it's the greatest thing ever put on the market."
"Why?"
"Because it's tougher than steel, cheaper than steel and will outlast any hunk of metal in existence."
"But who says so?"
"Jim, I studied engineering in college. When I see things, I see them."
"What did you see?"
"Rearden's formula and the tests he showed me."
"Well, if it were any good, somebody would have used it, and nobody has." He saw the flash of anger, and went on nervously: "How can you know it's good? How can you be sure? How can you decide?"
"Somebody decides such things, Jim. Who?"
"Well, I don't see why we have to be the first ones. I don't see it at all."
"Do you want to save the Rio Norte Line or not?" He did not answer, "If the road could afford it, I would scrap every piece of rail over the whole system and replace it with Rearden Metal. All of it needs replacing. None of it will last much longer. But we can't afford it. We have to get out of a bad hole, first. Do you want us to pull through or not?"
"We're still the best railroad in the country. The others are doing much worse."
====
In general this feels like a class of logical fallacy, of the form "no-one has attempted to achieve X, so X must be undesirable" but I can't find it in any lists.
edit: To make it clearer, take your post, and substitute slavery for coercive taxation. Your argument immediately appears specious, because with the benefit of hindsight we know that large, complex, modern societies did just fine after abandoning slavery. But people argued against emancipation in just that way at the time.
People arguing about slavery in the US did have the ability to observe that other societies had abolished it and been successful. And we today have the ability to observe other societies that don't have a stable monopoly of force and taxing power and see them in perpetual chaos, where competing groups with different sources of revenue struggle to become governments. It doesn't make any sense to say nobody has ever tried anarchy, because (a) it's all over the place, and manifestly involves poverty and misery, and (b) it was the original state of humankind, so we know it is possible and that government as we know it develops from it.
Sorry if I wasn't clear; I'm not arguing for anarchy, I'm arguing for small Government tasked solely with protecting the rights of its citizens, funded by voluntary taxation.
If government funded by "voluntary taxation" isn't anarchy, I'm not sure what else it could be. It seems to me obvious that either there is a monopoly on coercive power or there is not, and "voluntary taxation" means there is not. Which means you have multiple gangs or insurgencies.
It just takes more than a set of half-baked ideas.
The ideas must be fully thought through to their consequences, with second- and third-order consequences, adjusted so that they will actually work with real human nature factored in, tested, adjusted, then rolled out.
In this sense, although I am strongly attracted to Libertarianism and often use it as my default starting point, I recognize that it is like Communism in that it is completely impractical and won't happen in a real world (actually, communism has a better chance with modern tech solcing central planning, blockchain micropayments, smart contracts allocating resources, LOL, bs...).
I work in an industry that is in EXACTLY that situation -- Carbon Fiber Composites (I've also read Atlas Shrugged).
Ayn Rand's description sounded great when I was a teenager.
Living it for real, I know it is utter bullshit.
Carbon Fiber Composites are far stronger, stiffer, and lighter than any steel, and less expensive in small volumes. It's more expensive in large volumes, but R&D is mitigating that.
Yes, managers and even engineers have a bias against it because it is new and untested, takes more work to include in designs.
Yet, it is being steadily adopted.
---------------
In terms of govt, sure, a small govt with voluntary contributions sounds great. Until you realize (which you haven't) that this is setting up EXACTLY the commons problem: it is in everyone's interest too support the government, but in every individual's interest to freeload or over-use and under-pay. Eventually even the goodest of the do-gooders will be sick & tired of being mooched off of, and you're back to anarchy. If you doubt this, go look at the population of any commercially viable fish; ask how they're doing.
The fact of the matter is that if you ACTUALLY think through any of these ideas, they are hollow. That is the reason they have never been implemented.
No, they're really cooked up by accountants and tax lawyers. In the UK the situation works like this:
You, an accountant or tax lawyer or more likely firm employing both, come up with a scheme for avoiding tax that you think might be legal. You can charge people money for teaching them this scheme and helping execute it. Now, you tell the government about the scheme. The tax man can say "Yup, that's legal, all good" (and maybe tell the government the tax laws need changing if it wants to stop this next year) or they can take your clients to court and if a court agrees, require them to pay the extra taxes. You don't care, you got paid either way - the law doesn't chase you so long as you report the clever scheme.
Similarly, in the US, there's a structure called a "Private Letter Ruling", where an accountant/attny can request a private ruling about the tax treatment for a transaction/structure/etc.. IIRC it costs about $25K, and if they say it is compliant, you can go with it.
My personal prediction is that audit in its current form will cease to exist within the next 10 years. Already at Big Four firms, there is a shift towards risk management, especially when more and more clients are adopting technology to manage all of their financials. What used to take many hours/days for auditors to manually reconcile and "audit", now can be automated using technology and instead, the focus will be on assessing risk and controls that are in place in those technology solutions. This is evident by current downward trend of audit revenue (even in Big Four) and an increase in revenue coming from Risk Advisory service lines instead.
It is quite simple, the big 4 have the UK and US top companies sewn up. We need a cap on how long a form can audit one company as a start. This would take away the incentive to keep the client ahead of making good judgements
It seems like the relatively simple solution here would be to nationalize these firms, or at least their auditing aspect. A public company could handle that and remain more independent and less susceptible to greed than the big four. Have any countries tried doing this?
I believe that the appropriate model is the one chosen for the Paris MOU and copycat Port State Control authorities.
* Ports can't afford to inspect every vessel that enters
* Inspections are annoying and costly for owners even if their vessel passes
* But, left to their own devices the Flag States may skimp on inspections, causing a Race to the Bottom where ships registered with Flags of Convenience are mostly awful and the port states end up absorbing the cost (atrocious labour conditions, deaths and injuries, pollution)
So the Paris MOU randomly inspects ships, but it has an intelligent and adaptive model controlling the probability of any particular ship being inspected when it arrives in a port.
If (say) Panamanian flagged vessels all keep passing their Paris MOU inspections, the rate at which vessels with a Panamanian flag are inspected falls.
On the other hand if, say, Venezuelan flagged vessels keep failing inspection, rates of inspection for that flag go up.
This encourages owners interested in an "Open registry" (Flag of convenience) to pick one that's doing a good enough job at inspecting vessels to attract the lowest rate of Paris MOU inspections. Which in turn pressures the flag states to either do good quality inspections of their own, or get out of the "Open registry" game instead, either of which suits the Paris MOU signatories just fine.
So, governments should have their own small number of specialist auditors, and they should randomly re-audit some fraction of public companies, with the chance depending on which Audit firm that company hired and how many re-audits of other firms audited by that company found problems. The cost of doing all this would be paid by the audit firms, as both a fixed levy AND fines whenever something is wrong.
That is exactly what a PCAOB does except it is private.
The Public Company Accounting Oversight Board is a private-sector, nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.
Also realized, this is a bit analogous to how Bitcoin works. In Bitcoin _every_ other node in the network will validate (audit) some proposed work.
If at least 51% of the nodes in the network agree that some piece of work is valid, it has a good chance of becoming part of the permanent history (next block on the chain).
- Auditing is for compliance with state regulations, so the state should do it.
- With fines as a revenue source, it should be in the state's interest to catch mistakes and fines could/should be set to fund the state auditing apparatus
- any private organization paid by the auditee is necessarily in a conflict of interest
With fines as a revenue source it's also in the state's interest to find violations that may not exist. You can't assume that just because it's the government that it's on the up-and-up. People are corruptible, regardless of who their employer is.
Article aside, the title interests me. There does seem to be some general relationship between boring and safe (or interesting and risky) in our psychology, or mine at least. I wonder why that is?
Any new experience is interesting. People will often feel compelled to get a glimpse at an event they haven't seen before, or that is rare. New stimuli is sought-after.
People also derive their perception of safety from past experience. If you've driven in a car hundreds of times, you will think it much safer than doing something you've never done before. To many people, stability = safety.
I would always tell my younger brother there is a difference between dangerous and reckless. I think we are still saying the same things, but I'm not sure.
Just like a zero-day vulnerability waiting to be exploited, the cause of the next major economic recession is currently being synthesized, audited, and approved by the big 4.
If you have seen the work junior auditors do, it is begging to be automated. It will be a question of which company is first to get it past the standards bodies...
I work in accounting and have been seeing this for years. Most people are completely delusional because they think they have "professional skills" that will make them immune to automation. I've given up warning others and now I focus on just improving my IT skills.
I think people may have conflated these auditors' jobs with that of, say, an auditor from a government entity like the IRS whose job duties can include discovering fraud.