Limiting Auditor Liability is Plain Dumb

Audit firms put too many relatively inexperienced staffers on audits to do much of the leg work. Most auditors never take a single semester in-depth college level course devoted exclusively to combating fraud or understanding weaknesses in internal controls before graduating college. Worst yet, too many topics covered on the CPA exam have to be learned in a cram CPA review course, only after potential CPA candidates’ graduate college.

Now some clowns at certain audit firms want to limit their liability for failed audits? As a former CPA and the criminal CFO of Crazy Eddie, I advise public accounting firms to increase the professional competence of your staffs and improve your audit procedures if you truly want to reduce your liability exposure for your screw ups.

In the AAO Blog, Jack Ciesielski writes:

The funny thing is - the audit is under the control of the auditor. They could "audit better," if they chose to do so. And they could walk away from audits that they cannot audit better. Better that they have limits to their legal responsibility? Hmm... seems like they'd have even less incentive to do an audit better. I smell a moral hazard in the offing.

However, limiting auditor liability is not just a “moral hazard.” Limiting auditor liability is ultimately a danger to the integrity of financial information that is relied upon by investors. The integrity of financial information is the main pillar of our great capitalist economic system.

Written by:

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Financial Fraud: We Don’t Want These Companies to List Here

Let the markets with less “regulation” have them - those companies that do not want to meet our standards of corporate governance, accounting, and internal controls. We do not want them or need them here.

The London Market in particular with lower standards attracted these companies and now look what has happened to them.

An article in the New York Post entitled “Brits Get Bit” by Paul Tharp says:

London is paying a steep price for poaching a slew of new stock listings from Wall Street last year - financial fraud in the United Kingdom rose 40 percent.

Later the article reports:

British market watchers believe that shrewd charlatans, whose financial tricks are well known to U.S. authorities, are having a field day in the laid-back London scene.

The article is based on a report by BDO Stoy Hayward.

Remember all that talk about IPOs going overseas because of the regulatory burdens of the US markets. Many like the Paulson Committee Capital Markets Regulation blamed Sarbanes-Oxley.
Others like financial journalist Herb Greenberg said in his Market Blog in a commentary entitled "Why a Slow Down in IPOs May not be Bad" perhaps we are better off not letting certain companies go public in the US:

Has anybody stopped, for just a moment to ask whether fewer IPOs might actually be a good thing? Seriously, maybe some of these companies shouldn't go public in the first place, especially if they fear or don't want to pay for laws that are attempting to crack down on skullduggery.

Kevin LaCroix said in the D & O Diary Blog in his commentary entitled “Is London’s Light Touch Attracting Fraudster’s:

…perhaps the U.S. securities markets may be better off without at least some of the companies that are avoiding the U.S. exchanges’ tougher listing requirements

Perhaps Jack Ciesielski said it best in the AAO Blog in his commentary entitled "Known By The Company You Keep":

So - is worth it to be in that particular game? If you’re known by the company you keep, it might be a lot more costly to try to pacify the kind of stuff that’s moved to London. Investors should be thankful that seedier companies have found the U.S. markets too difficult to easily game because of Section 404.

May I say that it drives me “insaaane” as a former criminal when I see many of my victims and potential victims taking steps that would undermine the protections they require to prevent white collar crimes that may harm them?

The great American capitalist economic machine requires integrity in financial reporting.