Paul Volcker, a former Federal Reserve Board chairman and currently one of President Obama's economic advisors, was asked during a recent conference whether he thought the Big Four accounting firms were "too big to fail." He replied, "That's an obvious problem."
In general, being too big to fail is the notion that a company's economic reach is so vast and interconnected with the viability of so many other companies and individuals that allowing it to collapse would cause a crushing systemic financial blow to the economy. Over the past year, banks, auto makers, and financial service firms all were deemed too big to fail by the U.S. government, and as a result received federal aid to keep afloat.
Volcker, the keynote speaker at a conference sponsored by the AICPA and the IASB, noted that in its final report released last year, the U.S. Treasury Advisory Committee to the Auditing Profession questioned whether there was enough competition in the global auditing profession. He too wondered whether the PCAOB needed to have the same discussion about the auditing profession that bank regulators had had about their industry, namely that some type of "resolution process" might be needed that allowed the government to take control of bankruptcy proceedings if one of the Big Four folded.
Volcker said he didn't particularly like the idea of government intervention regarding a possible accounting firm meltdown. Yet he admitted that the auditing industry's "interdependence and consolidation" would likely require a solution of "extraordinary means."
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