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Do the CEOs of the top audit firms really want to use technologies such as XBRL to revolutionize financial reporting, or do they simply want to insulate their firms from liability?
David M. Katz, CFO.com | US
December 1, 2006
The audit firms and their motivations are only part of the story. Much more important is the underlying challenge: how do companies in today's knowledge economy report on their capacity for value creation? This was once the job of the balance sheet. But today's intellectual capital assets don't get reported. CFO's have to take some responsibility for learning the new language and measurement techniques associated with knowledge assets--not sit and wait a decade for the Big 4 and regulators to devise the final reporting standards--American companies need the competitive edge that such information brings now.
Posted by Mary Adams | December 18, 2006 02:56 pm
The comments received here to date are typical of the perceptions normally espoused by those with little basis upon which to comment. XBRL and real-time reporting are means of providing investors with data that is more geared toward their needs. Nobody would argue the current reporting system does not do this. While it is debatable to what extent auditors should be held liable for negligence, it is not debatable that another Anderson debacle is not desirable. Also note that years after the fact, the Justice department lost their case against Anderson, which was wrongly convicted. Commenters, limit your comment to the article and the information it provided you--your remaining comments are repetitive and less than useful when discussing fees and liability.
Posted by Ron Joas | December 04, 2006 08:30 am
I think more than protecting liability, the auditing profession wants to create another mega money spinning project. The lucrative income stream from 404 is slowing down so this will be the next big income generation project.
Posted by Homiyar Wykes | December 04, 2006 06:09 am
Come on, Mr Katz...why are you being so nice about this latest salvo from the accounting profession??? Let's be clear about what this PR stunt is all about: another attempt by the quasi monopolists that are today's big 4 accounting firms to come up with a money-spinning opportunity courtesy of regulators and government. You may have read that some CFOs in Europe have already kicked up a storm of protest about the proposals. It's high time that the US corporate financial community did the same thing. When will the Big 4 learn that the big money they make from the "public good" activities they undertake also comes with a price in terms of exposure to liability that they need to be extra vigilant to manage. I'm not saying that XBRL and the other proposals might not have some potential benefits as well as costs, but when they are used as a blatant excuse to request extra protection from the rigors of market discipline, it's time to call the auditors on their favorite pasttime: having their cake and eating it, without the risk that someone will take it away if they behave badly. A shame that the two things got mixed up--but given the big 4's record, not a surprise!
Posted by Martin Giles | December 02, 2006 12:28 pm
"Most notably, the report argues for curbing auditing firms' liability and relaxing the rules governing auditors' scope of service." These 2 statements, within the report produced by the public accountants, are troubling for 2 reasons. First, auditing firms' liability should not be limited insofar as the threat of liability in the face of negligence by not conforming to generally accepted auditing or reviewing standards ensures that the public accounting firms take the said standards seriously. Second, relaxing the rules governing the External Auditors' scope of services creates a slippery slope insofar as to where the line is drawn between auditing services, derivative reporting, and consulting services. It follows that the relaxing of rules governing External Auditors' scope of services will lead to independence problems reminiscent of the past. The public accounting firms already make sizeable profits and as such, the rules governing their scope of services should be restrictive to control corporate greed and possible corruption of character beyond what has been experienced in the past (and undoubtedly continues behind the scenes to this day).
Posted by David Newman | December 02, 2006 06:08 am
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