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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

#281

Post by tranchms »

Eisenstein wrote: post #260
tranchms wrote: post #259

Earlier quoted context omitted.

It’s true. I work as a Client Partner for a $1B+ consulting firm that comes in and cleans up after these situations. We bring in seasoned, experienced consultants with the functional knowledge that these big consulting firms don’t have. And even though our consultants are more costly on a per head basis, we’re more cost effective overall, because we do more with less. I always admired the big consulting firms until I…

I'm a bit confused because this isn't my industry. What exactly are these consultants doing? What are they supposed to 'deliver'?

The big consulting firm runs a program/project to deliver a result. Perhaps implement a new business system or technology or integration, optimize or implement a new process, perform some organizational change in the way things are done, etc.

Companies don’t have the skills or experience or expertise or resources or time in-house to do it themselves, so they essentially outsource the initiative or objective to a consulting firm.

It’s seen as less risky to go with name brand big consulting firm. But companies think they can pay little and get a quality delivery team, and the big consulting firms usually find a way to make a profit at the expense of quality by leveraging inexperienced consultants or consultants overseas with no real world experience.

Re: EY gets banned from new audit business in Germany

#282

Post by 23B1 »

jasmer wrote: post #269
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.

I've never heard of a U.S. based consultancy taking 80%. In my experience we'd be happy with an 18-20% margin, but more often it was half that.

Re: EY gets banned from new audit business in Germany

#283

Post by jasmer »

23B1 wrote: post #282
jasmer wrote: post #269

Earlier quoted context omitted.

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.

I've never heard of a U.S. based consultancy taking 80%. In my experience we'd be happy with an 18-20% margin, but more often it was half that.

I'm saying they are 5x more expensive than they need to be. So most of the money that goes to the agencies is de facto corruption, even if it goes to the workers who are working, but ouputting not much.

Re: EY gets banned from new audit business in Germany

#284

Post by qwytw »

ClumsyPilot wrote: post #280
qwytw wrote: post #153

Earlier quoted context omitted.

So just bring in another CEO just for the bankruptcy. Currently that's not an uncommon practice in the US. Of course this new CEO would have to be a one-use fall guy with somebody else actually doing the job... > If you prove yourself unable use that privilege responsibly Good luck determining whose actually to blame and who is innocent... at the end of the days only unlucky small to medium business owners who can't…

> Good luck determining whose actually to blame and who is innocent... I really dislike this attitude, lawyers, engineers and auditors are liable in case of negligence. Why should CEO's be excluded from liability?

Because you can just hire the CEO to take the blame and continue running the company from another position. Unlike with lawyers, engineers and auditors this arrangement would be much hard to prove.

Also CEO are liable when they engage in criminal behavior just like everyone else.

And where are talking about auditors there are very specific and procedures which define they duties and responsibilities. How could you replicate that for CEOs?

> I really dislike this attitude

I'm just trying to be rational...

Re: EY gets banned from new audit business in Germany

#285

Post by jsmith99 »

ejb999 wrote: post #33
crazygringo wrote: post #31

> Auditors insist that their services cannot be treated as a guarantee that accounts are truthful, and note that sophisticated frauds are by their nature difficult to spot. As someone who knows nothing about this area, I don't understand why audits won't always detect fraud. I would naively assume that auditors have access to all financial accounts and records of cash flows and they make sure they all add up and are…

>>Is there anyone here who can give an example of something fraudulent that is hard to catch? Someone in control of the checkbook at a medical facility who starts a shell company with some innocuous sounding name (i.e. Smith's Medical Supply) and and regularly submits bills in low enough amounts that they don't raise concerns - which of course is relative to the size of the company - but say you run a practice that h…

That would hopefully be caught by internal controls and internal audit but would be of relatively little interest to an external auditor like EY. The figures are small enough to be immaterial, meaning they don't significantly affect the accounts. The external auditors would be more likely to scrutinise big contracts and related party transactions involving senior management.

Re: EY gets banned from new audit business in Germany

#286

Post by 23B1 »

jasmer wrote: post #283
23B1 wrote: post #282

Earlier quoted context omitted.

I've never heard of a U.S. based consultancy taking 80%. In my experience we'd be happy with an 18-20% margin, but more often it was half that.

I'm saying they are 5x more expensive than they need to be. So most of the money that goes to the agencies is de facto corruption, even if it goes to the workers who are working, but ouputting not much.

Where did you get that 5x number?

The rate cards we use are tied to market rates. Consulting (and services businesses in general) aren't super-profitable.

I think probably you're just pulling numbers out of thin air.

Now if you think that the value of consultants is overrated, I tend to agree with you in some - but not all - cases. As an example, it makes little sense to hire FTEs for a short term project that has to happen on a discrete timeline.

Re: EY gets banned from new audit business in Germany

#287

Post by Aperocky »

hef19898 wrote: post #213
Aperocky wrote: post #147

Earlier quoted context omitted.

the incentives are misaligned. Publicly traded company should pay a small fee to SEC each year and they be responsible to hire auditors, for everyone. Or even better, market bid for auditors with incentives for finding irregularities. With the current line up of incentives, auditors merely ensures any fraud are slightly better hidden.

SOX is such a well thought of law. It requires any public company listed in thr US to have one auditing company and one "consulting" company supporting the set up internal controls and processes, prepare the books and so on. Those comoanies have to br changed every couple of years (if memory serves well every four years), and you cannot simply switch roles and stay with the same two. Hence a market demand for the big…

> SOX is such a well thought of law.

Is it? The incentives are not going to be aligned so far as the auditing companies are hired by the company being audited. It doesn't matter how many auditing company there is and the division of labor within.

Think of lobbyists, there are many different flavor of lobbyists, some might even be against the others. They distribute events, campaign finances and other things to legislators and as we know recently even certain members of judiciary. A bad idea in general in terms of the incentives at play.

Re: EY gets banned from new audit business in Germany

#288

Post by [deleted] »

qwytw wrote: post #284
ClumsyPilot wrote: post #280

Earlier quoted context omitted.

> Good luck determining whose actually to blame and who is innocent... I really dislike this attitude, lawyers, engineers and auditors are liable in case of negligence. Why should CEO's be excluded from liability?

Because you can just hire the CEO to take the blame and continue running the company from another position. Unlike with lawyers, engineers and auditors this arrangement would be much hard to prove. Also CEO are liable when they engage in criminal behavior just like everyone else. And where are talking about auditors there are very specific and procedures which define they duties and responsibilities. How could you re…

[deleted]

Re: EY gets banned from new audit business in Germany

#289

Post by remus »

SilverBirch wrote: post #168

I don't know if I have just enough knowledge to be dangerous, but it seems to me that auditors don't really do what people think they do. Auditors seem mainly to just double check the numbers they're handed. This serves a purpose, it provides some level of guarantee that companies that are acting in good faith are generally reporting correct numbers. Auditors don't do what people seem to think they should do - invest…

> Auditors seem mainly to just double check the numbers they're handed. This serves a purpose, it provides some level of guarantee that companies that are acting in good faith are generally reporting correct numbers. Auditors don't do what people seem to think they should do - investigate and uncover fraud. If a company wants to commit fraud, the auditors simply aren't resourced in a way that would allow them to uncover it because there's not really that much incentive to uncover the fraud, the fraudster is extremely motivated, and if you wanted that level of hostile investigative work it would be much more expensive for every company.

While I agree audit is a hard job auditors should not just rubber stamp what the company gives them. They should ask probing questions like "where did this sale come from?", "how did you calculate this figure?" and "why are you doing this? It is unusual." A consequence of this is that they may pick up on suspicious signs within a set of accounts and choose not to sign them off, but I wouldn't say theeir job is to identify fraud per se.

What is clear from cases such as wirecard is that EY have failed to ask these probing questions on several occasions, and subsequent audits (by other firms) have shown it is entirely possible to ask appropriate questions and uncover dodgy practices.

Re: EY gets banned from new audit business in Germany

#290

Post by robocat »

bitL wrote: post #261
robocat wrote: post #224

Earlier quoted context omitted.

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.

> Most of those expats you mentioned simply wanted to live above their means.

Actually, I had a friend working there as a nurse who bought property to live in, and they were underwater for a while. They were not stupid: it was an easy and normal mistake to make given their background (mortgages are not thought of as jail material at home, I’m not sure if they were warned of dangers).

I expect there are other unknown serious “gotchas”, because you are not a citizen in Dubai. You could easily be treated the same as the third-world working imported labour, and the legal system there can heavily penalise non-citizens.

Yeah: 0% tax is nice, but personally I think it is not worth it to live in a crappy place and there are hidden costs. Been there for a week just to have a good look around: fucking hated how people were treated there - weird economy.

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