Covering the auditor's role in the crisis

Francine McKenna, who writes about accounting for Going Concern, attended a recent conference at Columbia University on covering the economic crisis.

McKenna writes, “The panel I came for was the lunchtime discussion between Martin Wolf, chief economics commentator at the Financial Times and Nobel laureate Joseph Stiglitz. My question to Mr. Wolf and Professor Stiglitz :

Two themes I don’t think were addressed by the media during the financial crisis were: 1) Fraud by financial firm executives, and 2) Aiding and abetting of fraud by the auditors of failed and bailed out banks. Until the Lehman Bankruptcy Examiner report was issued on March 11th, there was complete silence on the accounting fraud behind the crisis. Auditors have yet to be called to account for their role in not warning us about or mitigating fraud. Why do you think this is?

“They responded. I am loosely paraphrasing:

Writing about accounting fraud is too hard for most journalists. There are exceptions, but there’s a perception that accounting is not as exciting or sexy as finance. Without obvious smoking guns, journalists reach for explanations that are more palatable to business readers. General finance and economics experts give better quotes and copy than auditors. It takes a 2,200-page report with pointed language from a bankruptcy examiner to bring accounting topics into the discussion. Journalists are now forced to work harder to explain what’s happened and to interpret solutions.

“Unfortunately, my experience writing about the accounting industry matches their comments. I don’t wish for a crisis or a major fraud to make my point, but I’ll take it. I’ve said throughout the subprime crisis that morphed into the financial crisis that fraud played a role and the auditors were, at least, negligent and potentially complicit in that fraud.”

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