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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

#261

Post by bitL »

robocat wrote: post #224
bitL wrote: post #104

Earlier quoted context omitted.

That's why one should just move to Dubai and escape Germany and its crazy taxes and health insurance costs.

Dubai? Extremely bad advice unless you deeply understand the sometimes “crazy” implications of their Sharia based laws e.g. debts: The UAE has no bankruptcy laws, so there is no protection for those who fail to meet their car repayments, pay off their credit cards or default on their mortgage, even accidentally. Anyone who fails to make their payments faces imprisonment in the notoriously tough prisons of the United…

Don't forget the 0% tax lowering the probability of bankruptcy significantly while living expenses are on par to a regular German city... Most of those expats you mentioned simply wanted to live above their means.

Re: EY gets banned from new audit business in Germany

#262

Post by Jolter »

jsmith99 wrote: post #241
lordnacho wrote: post #226

Earlier quoted context omitted.

What never made any sense to me was the incentives. Is the company supposed to hire people to write a public report saying the company committed fraud? It doesn't really seem like it makes sense for anyone. If anything, you'd just do some minimal performative work to say you had a good look in the company, and then you pick up more work next year. If you write a critical report, how many companies will want to hire y…

The auditors are appointed by the audit committee which consists of board members who are non executive directors i.e. they are not involved in the day to day running of the company and so theoretically should be independent and interested in uncovering any wrongdoing by management.

Exactly — the auditor is appointed to represent the interests of the shareholders, not the executives. At least, that’s the way it is supposed to work.

Re: EY gets banned from new audit business in Germany

#263

Post by lordnacho »

Jolter wrote: post #262
jsmith99 wrote: post #241

Earlier quoted context omitted.

The auditors are appointed by the audit committee which consists of board members who are non executive directors i.e. they are not involved in the day to day running of the company and so theoretically should be independent and interested in uncovering any wrongdoing by management.

Exactly — the auditor is appointed to represent the interests of the shareholders, not the executives. At least, that’s the way it is supposed to work.

If some fraud is uncovered, the shareholders will lose a bunch of money. So how does that align incentives?

Re: EY gets banned from new audit business in Germany

#264

Post by Jolter »

lordnacho wrote: post #263
Jolter wrote: post #262

Earlier quoted context omitted.

Exactly — the auditor is appointed to represent the interests of the shareholders, not the executives. At least, that’s the way it is supposed to work.

If some fraud is uncovered, the shareholders will lose a bunch of money. So how does that align incentives?

Presumably, any undiscovered fraud against the company is more expensive to shareholders than the discovered fraud.

Re: EY gets banned from new audit business in Germany

#265

Post by truetraveller »

eru wrote: post #258
ethbr0 wrote: post #245

Earlier quoted context omitted.

On the consulting side of the audit firms that you're talking about, I think people misunderstand why companies hire big consultancies. It is not for performance. It's for minimizing risk . And not "risk that the project will fail to hit its schedule." Rather "risk that the company is unable to deliver the thing we're asking for at all." When I've seen big consultancies fail, it almost always goes like this: (1) big…

> And not "risk that the project will fail to hit its schedule." Rather "risk that the company is unable to deliver the thing we're asking for at all." The other big risk is: 'Will _I_ get in trouble, if the project fails?'

This is the primary factor, by far, to my knowledge. No one got fired for buying IBM.

Re: EY gets banned from new audit business in Germany

#266

Post by truetraveller »

ethbr0 wrote: post #245
23B1 wrote: post #179

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…

On the consulting side of the audit firms that you're talking about, I think people misunderstand why companies hire big consultancies. It is not for performance. It's for minimizing risk . And not "risk that the project will fail to hit its schedule." Rather "risk that the company is unable to deliver the thing we're asking for at all." When I've seen big consultancies fail, it almost always goes like this: (1) big…

Actually I disagree strongly. It's primary because blame shifting. You know, "no on got fired for buying IBM". Also, to confirm a C-execs "vision". He can always say " agrees with this too".

Re: EY gets banned from new audit business in Germany

#267

Post by hestefisk »

denlekke wrote: post #246
chinabot wrote: post #185

Earlier quoted context omitted.

Lets face it, the answer from chatGPT would be almost identical to what these consultants say, however the main reason for consultants is to CYA so if the decision is bad, you can blame someone else.

just repackage chatGPT as a new consultancy, McKenzie, and hope no one notices actually, brb

You mean McKinsey?

Re: EY gets banned from new audit business in Germany

#268

Post by hestefisk »

Jolter wrote: post #227
23B1 wrote: post #179

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…

Interesting, but how does your experience relate to the linked story? Is EY somehow related to Accenture? Are Accenture also doing auditing?

Accenture was spun out of Andersen Consulting after the Enron saga. Andersen had both a consulting business and an audit arm - they were one of the “big five” audit firms before the collapse of Enron. Today, Accenture only do consulting; they do zero auditing. EY are not related to Accenture or Andersen. EY is an audit firm (one of the “big four”) with a massive consulting arm. Unlike Accenture which is a global firm, EY operates more like a local franchise. They do this to minimise risk of contagion from a bad apple like in Germany to other audit businesses in different countries. As such, EY is far from a global firm, but more like a collection of separate audit and consulting firms in different countries who all have a license to use the EY brand. This is an important difference.

Re: EY gets banned from new audit business in Germany

#269

Post by jasmer »

23B1 wrote: post #179

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…

It's a form of corruption. In China, they take 10% of the top, in Africa the money dissapears, in the West, consultants take 80% and it's all legal.

Re: EY gets banned from new audit business in Germany

#270

Post by mjevans »

bradleyjg wrote: post #41
angus-prune wrote: post #26

Earlier quoted context omitted.

The current problem is that the insentives are all wrong. It is the company being audited that gives the auditers the business. Its not in the interests of a dodgy company to appoint a good auditor, and its not actually in the auditors (short term) interest to uncover wrongdoing as it just means they'd lose a client. My proposal is that you require every company to have insurance to cover the risks, making the insure…

There was something like this with bonds pre 2008 but it didn’t work out like you suggest. Rating agencies were, and are, paid by bond issuers are rated a bunch of synthetic real estate backed bonds as very safe. But then on top of that, certain of these bonds were insured—-notably by AIG. However, AIG just rubber stamped the ratings and ended up going bankrupt when the crisis hit. The real mismatch of incentives is…

Who audits the auditors? The insurance company also needs it's risks assessed independently.
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