The Finance section of this Sunday's edition of the London Telegraph carried a piece by Sean Farrell, under the evocative and self-explanatory headline, "Billion-Dollar Lawsuit Could Destroy Top Accountancy Firms."

It can happen. Attention should be paid.

Farrell captures the essence of the structural weakness of the current model for the delivery of audit services to the world's large global companies, as demonstrated by the speed with which the Andersen firm disintegrated in 2002 under the stress of the Enron debacle:

I talked at length with Farrell last week, while his story was in preparation — and was gratified to see his uptake on the under-appreciated research done on the limited financial capacity of the Big Four to resist or withstand large-scale litigation claims, because as private partnerships they lack access to the outside investor capital available to public-company corporate structures:

I've written on this subject before. See here and here for calculations of the "tipping point" numbers on the Big Four's exposure to litigation in the US — where the largest threats are lurking — numbers that should be eye-opening because they are miniscule compared to the firms' exposures. 

Farrell quotes me:

Critics of the accounting profession will have their say, as they well should. But no discussion agenda on the future of the large-company audit franchise is either complete or credible unless it includes the unsustainable nature of the current regulatory and legal structure, within which the business model of the Big Four firms is at mortal risk.

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