Are Auditors being unfairly blamed?

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censuspro

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"Are auditors being unfairly blamed for the problems being discovered at Irish companies"

[broken link removed] was a poll in the irish times yesterday. Surprisingly it's 36% yes and 64% no!

I think the auditors have got out of this crisis scott free especially when you consider the contracts won by E&Y with NAMA and you consider that E&Y audited anglo and failed to report directors loans of €155 million to Sean Fitz and not to mention the €7 billion in post balance shhet events between Anglo and IL&P. There's also PWC who have also won a contract with NAMA, told us that NAMA's losses would be €3 billion and not the €12.7 billion which it has turned out to be
 
Re the NAMA valuations, you'd need a crystal ball to be correct on that, who knows how accurate the latest accepted figure is. Maybe they were fed rubbish and had no way to 2nd guess it.

As regards Anglo, it is hard to see how massive deposits and withdrawals annually were missed, its called "window dressing" and should be something to be looked out for.
 
This topic was covered on Frontline last night. [broken link removed]

It also gets a mention in coverage of the disasters at Irish Nationwide - from today's Times article [broken link removed]


This is particularly concerning, as the auditors gave clean bills of health to the members at the AGM each year, but it seems that behind the scenes, they had other information to hand.
 

I think people need to understand that an audit is effectively someone asking you 'are you sure you did everything you were supposed to?'. If they were 100% honest the would ask you to sign a piece of paper confirming the above and that would be the audit. That, effectively, is all they do.

They're a huge waste of money for what they add to the process.

In the case of our Auditors they rely on us to explain what we have done, not so that they can find issues, so that they know what's supposed to be done. It's never stuck me as being an additional control on procedures.
 
DerKaiser said:
I think people need to understand that an audit is effectively someone asking you 'are you sure you did everything you were supposed to?'.
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I understand this, but in this case, the same auditors had specific information that they did NOT do everything they were supposed to do, in terms of credit checks and lending practices. But they were still prepared to take their audit fee (€300k iirc) and give a nice, clean report to members at the AGM.
 

I'll accept that to a certain extent, but in my experience in various workplaces dealing with auditors there has always been quite a thorough examination and analysis of seeing if we actually are doing everything as we've said we are. In my experience it was never the rubber stamping exercise it appears to have been elsewhere.
 
Plenty of blame to go around. The staggering thing is that everyone knew this was going on. Rating agenices talked about it. Auditors talked about it. Regulator talked about it. And yet it was still allowed to go on.
The Board of Directors are the ones who have to take ultimate responsibility though.
 
There was a lot of prestiege auditing the banks.

Going concern + true and fair view were thrown out the window.

Loan Procedures and whether loans were backed up with deeds was ignored.

Auditors are teapped by procedures with many lacking cop on.
 
Sunny said:
The Board of Directors are the ones who have to take ultimate responsibility though.
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Don't get me started on non-executive directors!!!! I would say the amount of old farts prepared to draw a non-exec directorship fee without an iota of knowledge of the business is endemic.

Honestly there are many businesses that auditors or board members couldn't possibly understand unless they had lived and breathed them for a large part of their working lives.

We need a regulator who knows the business they regulate better than anyone else and for them to authorise directors and auditors on the grounds of competency.
 
An auditors job is to state whether the financial statements of a company give a "true and fair view". In order to this they carry out certain checks and are supposed to have an understainding of the industry and company they are auditing.

There are two fundamental issues that the Ernst & Young, the auditors of Anglo need to be asked.

1.The directors loans of €180 million to Sean Fitzpatrick
2.The transfers of €7 billion to IL&P

If E&Y knew of these transactions why did they not report them, or if they didn’t know about theses transactions, why not?

There is very specific company law AND specific tax legislation in relation to directors loans. Prior to commencement of an audit, an audit plan is carried out and level of risk is ascertained. The most obvious level of risk when auditing a bank is the loan book because that is what a bank does, it lends money. The auditor should is supposed to obtain confirmation of directors’ loans with the directors signing a personal letter to the auditors confirming the amount of the loan. If it’s a case that the auditors were given false information then that in itself is an indictable offence and surely that is evidence of fraud on behalf of the directors. If it is a case that the auditors knew and didn’t report the directors loans then that is negligence on behalf of the auditors.

Posters on here argue that an auditor cannot check every single transaction, which is true. However, €7 BILLION is a large sum of money and surely these large sums would have been noticed. Others will say it was done after the year end when the audit was finished, however one of the requirements of an audit is to check PBSE’s (Post Balance Sheet Events) to see if there are any transactions after the year ended that would materially effect the financial statements. Even if this exercise was carried out and it was missed, it would have showed up in the audit the following year.

To make matters worse, E&Y have now been appointed to advise NAMA on loan valuation services. PWC have been appointed to NAMA to provide tax advice and KPMG have been appointed as auditors. All of these firms have done audit and consultancy work for Irish banks, not only that, their clients are the same developers who are having their loans books transferred to NAMA!!! So within the same accountancy firm they are advising Liam Carroll and Bernard McNamara regarding their personal finances and at the same time they are advising NAMA on what to do with the loans. A blatant conflict of interests. You could not make this up.
 

The Regulator approved #2.
 
Re the bould Seanie, while it may have been wildly imprudent to give 1 man €180M to go speculating, it may not have been against company law provided the loans were approved properly (ha ha). Basically a director cant have loans from his company greater than 10% of Net Assets, so he probably was under that threshold (though if you put real values on the assets at the time it could have been a different story).

So overall its just a little harder to make the charge stick.

Re firms on both sides etc - the market is fairly concentrated, only about 6 firms in the country would have any hope of doing the work (in terms of scale and experience), the big 4 in particular are massive so it isnt totally unfeasible to have "chinese walls", plus I gather NAMA were insisting on separate buildings etc

For all that it does rather reek of Running with the hare and hunting with the hounds.
 
Remember the old chestnut about the difference between a non-executive director and a supermarket trolley?

The supermarket trolley has a fairly limited capacity for food and drink, and sometimes has a mind of its own.
 

Yes but the full amount of the loans to Sean Fitz were not fully disclosed as directors loans in the financial statements. So if they weren't shown as directors loans how were they disclosed?

Also, my understanding is that these loans will not be repaid because they were secured against the shares in Anglo which are now worthless. The Taxes Consolidation Act 97 states that loans to directors which are subsequently written off are treated as income in the hands of the directors. This means that if Sean Fitz loans have been written off then he is deemed to have received income of €180 million which he is liable to tax on.
 

I think the income tax charge applies if the company just says "hey, forgeddabout the loans and keep the change", whereas in reality they'll have to be seen to pursue him, pointless and all as it is. I presume his loans werent limited recourse (unlike the golden circle) so, in theory at least, they can pursue him for any assets he owns (bar the home if wife has a stake in it etc etc etc).
 
Does anyone know how Sean Fitz loans were revealed if the were concealed in the accounts?
 
Are Auditors being unfairly blamed?
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No, they are not being blamed enough. They took the money to do a job. If they didn't get the information they needed they shouldn't have signed off on the accounts. If they got what they asked for but didn't see the problems they were incompetent.
 
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