Written by Roderick Russell on MEDIA LENS on March 6, 2010

In response to an article:
How men in grey suits changed the world - By Jolyon Jenkins
http://members5.boardhost.com/medialens/msg/1267904756.html

[This article written for a UK audience is also very applicable to Canada. Our financial sector had similar liquidity problems though not as bad as in the UK, partly because Canada's banking sector is not relatively as large as in the UK and partly because of a huge bailout where our government agreed to buy-out bank property assets]

-----------

I think it is a little hard to blame accountants for the highland clearances, as Jolyon Jenkins suggests, which were surely the responsibility of the highland aristocrats of the time who so abused the trust of their own clansmen.

But one can apportion some blame to the (Big 4 CA firm dominated) accounting profession and the ICAEW for the recent banking collapse. I am surprised that the press hasn’t examined this issue in more detail.

What the ICAEW (and the CICA / Various International Accounting Bodies) have done is to develop Standards ostensibly to improve financial reporting, but actually to make things easier for the Big 4 auditors. Had the old traditional accounting conventions (which include conservatism and going concern) been properly followed, the current banking crisis could not have happened in the magnitude that it did – auditors would have been forced to flag the developing crisis at an earlier point by qualifying bank financial statements.

The banking crisis was not cataclysmic; the financing bubbles that caused it had been developing for many years. So where were the banks’ auditors? Why were bank financial statements showing high levels of profitability right up to the point of the financial collapse? How unrealistic can the accounting profession get? When a bank has tame auditors, using standards as an excuse to sign off on accounts that were over optimistic, the shareholders have no protection at all. What went wrong with the audit of these banks? One is left with an impression that audit firms were sometimes more interested in chasing fees than in protecting shareholders.

There has always been a minority within the profession that opposed excessive standardization as quite likely to lead to a future crisis. 30 years ago (when I headed up financial accounting for a large Canadian-based multinational) I wrote a paper on this very topic which I presented to a member of the then International Accounting Standards Board and also filed with the CICA. Others had taken a similar viewpoint long before me, but we all discovered that opposing standardization was not a “politically correct” position to take in the Big 4 (then big 8) dominated accounting profession.

And of course I have another issue that I brought to the then President of the ICAEW’s attention some years ago that goes deeply into the ICAEW’s ethical standards. It is outlined on the URL:

http://zerzetzen.wikispaces.com

It’s about harassment, intimidation, threats against a Chartered Accountant. The ICAEW were asked for help on several occasions. They didn’t even respond, putting toadying to the establishment ahead of professional ethics.

One is left with the distinct impression that too many in the Big 4 dominated accounting profession put the search for profit ahead of professionalism; toadying to the influential ahead of ethics. As a result of this, the taxpayer has recently had to bailout The City and the Banking sector.

No. Mr. Jenkins, I don’t think history can portion out blame to accountants for the highland clearances or the holocaust, but I do think that the Chartered Accounting profession must accept a measure of responsibility for the recent financial holocaust in The City which has burdened the economy for generations to come.

Roderick Russell
207 - 1733 27 Ave SW
Calgary, Canada
403.229.0864
clyn2der@yahoo.ca