Toppling a Big Four player, cost: $450 million

by Dennis Howlett on January 2, 2007

The International Herald Tribune speculates that the potential litigation cost necessary to bring one of the Big Four down could be as little as $450 million. The range given is pretty wide at up to $1.8 billion but the warning signs are there that something catastrophic might happen in 2007:

Ethics codes and practice limits are not solving the perception, as put by a Big Four partner in Paris, that “reform has been unable to deal with the ‘last mile,’ that is, the fact that the auditors are paid by the person in control.”

This is a well understood problem but with little by way of solution in sight. Somehow, I think it will take what Rod Boothby believes will be a massive decline in SOX revenue before the Big Four wake up and realise that audits are not the gravy train they’ve become. It might also require management teams to wake up and question: ‘What are we getting for our money?’

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  • Dennis

    I've often thought that the responsibility for the selection of an audit firm should be transferred to the Govt/Quango which should be responsible for running a competitive tender for the audit assignment, with company still paying the audit fee.

    I feel this would have several benefits
    - audit firm couldn't be threatened by the management of the company with losing the audit & so their (perceived) independence should improve
    - rotation would be easy to enforce from the centre
    - supplementary services to the company wouldn't be relevant in the selection process
    - as well as competitive tender, the Quango would also have plenty of billing info/data to assess whether the fee was appropriate for the industry sector etc
    - alumni ties between companies & audit firms would be irrelevant (how often does the CEO/CFO appoint their old firm!)

    Challenge would be to keep the Quango honest & free of links to the audit firms! As regards being competent to make a selection, I believe that there are enough sufficient skilled folks around that can be co-opted to such a body.
  • Hey Dennis,

    You hit the nail on the head with the possibility that management teams might "wake up and question: ‘What are we getting for our money?"

    How much value is there is a bunch of stale SOX documents that do not reflect what is dynamically going on within an organization?

    Any of the new blog / wiki tools would move work flows from a collection of hard to trace emails, spreadsheets and word docs into a access controlled, audit trail enhanced environment.

    The thing I am interested in is seeing which of the Big 4 realize that the advent of "Personal Servers" is going change the game as much or even more than the advent of PCs. Which ever member of the Big 4 does get it, they stand to gain tremendous market share over the other three as they show companies how to both do better and reduce SOX costs.

    - Rod
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