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EY gets banned from new audit business in Germany

economist.com

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Re: EY gets banned from new audit business in Germany

#171

Post by wouldbecouldbe »

looping__lui wrote: post #146
331c8c71 wrote: post #145

Earlier quoted context omitted.

> I’m not sure why certain businesses should be “banned” because YOU believe they do not add value. Do you pay them? No. Yes, whenever they are hired by the public sector. http://recreation.gov is one example in the US I know about.

So the public sector should not hire private contractors in general. State it like that then. How is a mismanagement of consultants by public sector entities a justification to “ban” an entire sector?

We should probably ban the "no skin in the game part" instead of just the sector. Even though there have been a few court cases, the effect was tiny and they are still considered reputable. In some cases probably more personal lawsuits should be done more often (also for politicians and civil servants)

Re: EY gets banned from new audit business in Germany

#172

Post by wil421 »

theK wrote: post #165
55555 wrote: post #152

Earlier quoted context omitted.

Yeah but then the experts at the big 4 are 23 year old grads with no experience. I don't get it.

Not if you look at Audit (which is what the EY story is about). In Audit you have legislature requiring accountability structures and typically there will be one or more persons in an audit that are personally accountable about the attestation. These people in big fours typically are some certified auditors in their 30s and also a partner at the firm (40s and up)

I know a few people who went into Audit after Masters in Accounting degrees. It was basically a 2 year post grad program to excel their careers. None of them wanted to go for partner it was just a 2-3 year box to check.

I know much more people on the IT Consulting side who are in it for the long haul to partner or whatever. The job was also much better than the Audit scene, 80+ hour days in a sweaty conference room and next to no days off.

They both had he same MO, send in the 30s\40s flashy employees who then delegate all the work to 23 year olds. Once the project is in full force they tend to leave and another crew comes in who interfaces with the low cost offshore teams or 23 year olds.

Re: EY gets banned from new audit business in Germany

#173

Post by dhruval »

theK wrote: post #165
55555 wrote: post #152

Earlier quoted context omitted.

Yeah but then the experts at the big 4 are 23 year old grads with no experience. I don't get it.

Not if you look at Audit (which is what the EY story is about). In Audit you have legislature requiring accountability structures and typically there will be one or more persons in an audit that are personally accountable about the attestation. These people in big fours typically are some certified auditors in their 30s and also a partner at the firm (40s and up)

Partners and managers review and sign off, but the people designing and doing the actual audit procedures are mostly in their 20s.

Re: EY gets banned from new audit business in Germany

#174

Post by epups »

wouldbecouldbe wrote: post #171
looping__lui wrote: post #146

Earlier quoted context omitted.

So the public sector should not hire private contractors in general. State it like that then. How is a mismanagement of consultants by public sector entities a justification to “ban” an entire sector?

We should probably ban the "no skin in the game part" instead of just the sector. Even though there have been a few court cases, the effect was tiny and they are still considered reputable. In some cases probably more personal lawsuits should be done more often (also for politicians and civil servants)

I don't get it. Do you think auditors and consultants that screw up on their job should be prosecuted?

Re: EY gets banned from new audit business in Germany

#175

Post by epups »

wouldbecouldbe wrote: post #83

EY, Mckinsey, Accenture, BCG all of them should be banned. They were the big proponent of the the just in time management principles in the hospitals in the Netherlands. Then when covid came they were the first the market on twitter & linkedin for advice how to improve your health inventory & deal with covid challenges. Serious impact with zero skin in the game. These consultants are parasites. They are mainly used a…

What is "skin in the game" in this context?

Re: EY gets banned from new audit business in Germany

#176

Post by fnordpiglet »

heisenbit wrote: post #88
fnordpiglet wrote: post #49

Earlier quoted context omitted.

What should happen is audit becomes a public trust financed by a tax on all public companies.

Which in turn creates the issue of how to keep this trust truly independent. There have been successful long term campaigns to wrest control of supposedly independent bodies and align them with special interest groups.

Today they’re explicitly not independent, that seems specifically worse. There are also examples of highly effective regulators. Financial services is actually replete with them.

Re: EY gets banned from new audit business in Germany

#177

Post by wjnc »

lima wrote: post #22
wjnc wrote: post #7

Look, these sentences are probably more than just and even on the light sight. Handing in your auditing license is a pretty severe punishment, at least career changing. But will the risk and audit professionals at BaFin face the same penalties?

The head of BaFin and their deputy were forced out over it and the agency is undergoing significant restructuring[1], and a new agency was formed specifically for investigating financial crimes[2]. In terms of actual liability - no, at least not yet. A number of lawsuits by individual investors were thrown out[3] but it's possible there will be public prosecution: > Criminal prosecutors in Frankfurt are assessing whe…

To reply to just one sentence: From my experience the relationship between auditors and financial (prudential) regulators is only lightly one of relying upon. On the one hand of course having trouble getting your financial report signed is a key risk indicator for the regulator, on the other hand the regulator in my sector (insurance) goes markedly deeper in their thematic and on-site reviews than the auditors do. Even though the auditors sign off on things like capital requirements, the regulators understand models way better. Those building proper models usually don’t work for the big-4 that do auditing, but work for more niche firms and the insurers themselves.

I’ve worked for a regulator in a sector with more lenient oversight (health) and there the accountant was one of the pillars of our understanding. We just didn’t have the mandate or capabilities to understand the finance of the thousands of providers. In that way regulating finance is easy. Banks and insurers are relatively low-N activities. In case of BaFin I find it hard to imagine that they couldn’t, so they probably wouldn’t.

Food for another thread is how to match the European perspective above to, say, the SVB case in the US. How on earth the regulator didn’t track the interest rate risk is beyond me. (I believe the legal explanation is that they fell in a D-F regime with less regulatory burden.)

Re: EY gets banned from new audit business in Germany

#178

Post by epups »

stefan_ wrote: post #66
FabHK wrote: post #52

Earlier quoted context omitted.

So, Wirecard claimed to make huge profits. Now, the auditors would expect to see a pile of cash in the accounts. However, Wirecard claimed to expand rapidly by purchasing other companies in Asia. Those, then, booked most of the "profits" and were the assets on the book. Wirecard produced bank statements from the Philippines claiming that they had $2bn cash sitting there. So, to the auditor, the numbers added up, and…

Which, to be clear, is a failure of the auditor. We don't need auditors to make sure the numbers add up; the whole point of double-entry bookkeeping is "the numbers always add up".

Depends on the scope of the audit. In most cases that's precisely what they do, make sure the numbers add up, and we do need that.

Re: EY gets banned from new audit business in Germany

#179

Post by 23B1 »

I worked at Accenture as an MD for several years, primarily on innovation and transformation programs. I have plenty to say about them, but I think the key driving factor for all of the grift and awful performance has a lot to do with how they operate, which is to sell in a big program, then pull a switcheroo and try and pack a project with as many low-paid MBAs as possible – kids straight out of college tasked with a (thin slice) of a major strategic program, or find some sub to farm it out to at a really low price.

Since going out on my own as a consultant – focused on the same sort of growth programs, as opposed to audit – I generally find that I can achieve the same outcomes for a client with a handful of people on a a reasonable budget.

I left primarily because it's just bonkers how much pork these big consultancies manage to get away with packing on, to the point where it was a major reputation risk to me.

I'd encourage any CXOs out there seeking to outsource major strategic initiatives to consider hiring individuals or smaller entrepreneurs with experience inside the bigs, but without the downward pressure to get as many butts in seats as possible.

Re: EY gets banned from new audit business in Germany

#180

Post by fnordpiglet »

cjbgkagh wrote: post #108
fnordpiglet wrote: post #49

Earlier quoted context omitted.

What should happen is audit becomes a public trust financed by a tax on all public companies.

Audits can be very expensive and finding the optimal depth of auditing is difficult and unlikely that a public trust would be anywhere close to optimum amount. Financially savvy people should already know that the audit process is flawed and should not simply be accepted on face value. How flawed is usually stated in the audit, checks are split into controls testing and substantive testing. Usually the cheaper the au…

Here’s a counter example: going public. The SEC does a deep probe, one that has material teeth, and “yes” isn’t a conclusion. Surely the SEC is subject to these forces? Another example is merger approval, along antitrust and other regulations. This is a very deep process, clearly with a lot of extremely powerful money on the line. Or another, tax collection. Fact is there’s actually a lot of examples of effective controls on business, especially when financial crimes or malfeasance are the target. The laws are particularly sharp in the finance world compared to say, food safety or other regulatory areas that are clearly captured.
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