Enron Auditors Were S/holders14 Jan 2018 17:00
A great deal of the financial collapse of 2007-8 in the US was affected by lack of regulation i.e. auditors were able to hold shares in the business and professional independence flew out of the reporting structure, especially Enron. There will always be a 'Subjective 'element to the commercial judgement involved in preparing any financial statement. The accounting guidelines infer prudence, consistency, matching concept and going concern valuations. The creativity lies with the Industrial in situ accountant/ FD or CFO, he has the advantage of hands on day to day, in depth knowledge of the business (relationships with customers/supplier etc) and is normally a deal maker in his/her own right, it is down to the external auditors to uncover and report on the truth. So in answer to your question, the BT Europe fraud was internal, Tesco, Barings and so on and are hard to spot in the first instance but the systems, quality procedures/staff hard work and endeavour will be become clearer with time. Any professional person in business - lawyers bankers estate agents will always be tempted, that's life Jim - that's why corporate governance and a quality BOD is key when reviewing any investment. I've had +10 years of auditing experience and many an 'Internal Accountant taught me a few things.
One honest example of my experience, an engineering firm, year end bank balance was �400k overdrawn in the cash book and year end balance Sheet, yet the bank statement showed +�250k cash in hand. I was a kid then, and asked why are you overdrawn? I can see there are �650k of un-presented cheques outstanding, i.e written out posted to the cash book as outgoing and sent out in the post. He laughed, opened his draw to show �650k of cheques in hand. He coughed and said, I can't show �250k cash in hand - the Unions would demand a higher wage increase and we are in a recession!. Called window dressing, the subjective view do you adjust the Balance Sheet, or not the company was private, it was not in breach of any covenants GL
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