Hello again – after an unexpected pause and with a new look – as requested by exactly nobody. 

After many years of good performance, my hosting service blind-sided me with an abrupt notice of its closing at the end of September. While it’s taken longer than I expected to relocate and re-engineer, and this new site will need some tweaking, the process has inspired some introspection. 

Twenty-plus years of writing about the large accounting firms and their role, performance and issues in the eco-system of the world’s capital markets has built an archive that spans twenty-plus years, dozens of columns, several hundred posts and two books. I along with my audiences might reason that any views of value have been fully aired out. 

We’ll see. A survey of the landscape of issues does suggest good reasons to carry on. Transition glitches have meant that my valediction on the old site reached only a few of you; here then an updating, to re-visit that piece in this new context.  

To start, it’s a fallow period of relative calm. For the moment there’s not much going on, although history should remind us that ebullient markets are cyclical, and that outbreaks of financial misbehavior are a trailing indicator in their eventual downward plunges. Recall Warren Buffett, that “when the tide goes out you knows who’s been swimming naked.”

Things are sure to heat up. The vengeful howl of “where were the auditors?” will be heard again, soon enough, in the next period of serious investor distress. Until that inevitable return, we’re in the combination of historically low interest rates, record-setting market indices, investor pursuit of fantasy-based returns untethered from actual performance, and regulatory and law enforcement attitudes of indifference shading to active complicity in white-collar criminality.   

We don’t know when, although we are already a half-decade into the trough of official impotence and disinterest that muted the loud blasts of outrage over the likes of Carillion, Patisserie Valerie, Wirecard and Evergrande and the non-listed if no less real predations of Elizabeth Holmes and Sam Bankman-Fried and Charlie Javice. 

Elsewhere – my view has relaxed on the prospects for a litigation-driven collapse of the Big Four firms’ iron grip on the large-company audit franchise. Not that they are not exposed to the scale of catastrophe that Enron’s fall in 2001 inflicted on Arthur Andersen – as spelled out in detail in my book, Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms (Emerald Books, 2d ed 2017). They are still exposed under the limitations of their self-insurance and their organizational and capital structures. But as the largest firms’ annual global revenues approach or exceed $ 60 billion, their expanded resilience and the well-demonstrated lack of competence or appetite among the world’s judicial systems to impose a death-blow judgment makes that likelihood look considerably diminished. 

Still, for a risk manager unable to suppress the nagging question – “what else is lurking?” – there are at least two concerns that will move to the front burners. 

The first is the increasing presence of third-party capital – most often, private equity investments – in the “mid-sized” accounting firms – those below the size of the dominant Big Four, who themselves have neither need nor appetite to share their profitability. Announcements come weekly from firms large enough to have audit practices serving the smaller listed companies and significant private enterprises. 

The injection of private equity and other forms of profit extraction from the accounting firms in the middle bend of the size curve introduces appetites and aspirations that are doubtful of reconciliation with both the structure and the principles of the traditional partnership model. 

That’s a subject for separate and further scrutiny, as the time of reckoning arrives. Those target firms are large enough to suffer a financial debacle that generates a “one-and-out” litigation blow, when an eruption of client malfeasance blows up into a lawsuit claiming auditor failure, or a deal founders under the dysfunction of leadership trying to serve non-aligned strategies and divergent interests. Then, instead of the anticipated pay-day of an IPO or other exit strategy, a PE investment will at best be trapped and captive, or worse, will go out the door as part of a lawsuit resolution. 

The second concerns the rapidly-evolving area of Sustainability – the high-volume public cry for expanded reporting of corporate activities spanning the broad and vaguely-described spectrum from greenhouse gas emissions and environmental protections to workplace safety and employee rights across whole supply chains. Advocates within and around the accounting profession are vigorous in pursuit of opportunities to extend their assurance opinions. Those are worthy aspirations, except that concerns for risk and exposure are both fraught and under-appreciated, with standards that are neither matured nor converged, requirements for expertise across new fields remaining to be filled, and for want of “safe harbor” provisions or exposure protection from claims sure to arise at a deadly level. 

I have appreciated your loyalty and your support. As I work through the technical challenges of this site relocation, I take inspiration from the image of the old fire house dog, rather greyed and scarred from the years of wear and tear, yet still roused to answer the call when the alarm bell rings.   

Thanks for joining me here. Please share with friends and colleagues. Comments are invited and welcome, and subscription sign-up is easy and free – both at the Home page.