[HN Gopher] EY gets banned from new audit business in Germany
___________________________________________________________________
EY gets banned from new audit business in Germany
Author : mfiguiere
Score : 332 points
Date : 2023-04-09 12:04 UTC (10 hours ago)
(HTM) web link (www.economist.com)
(TXT) w3m dump (www.economist.com)
| lakomen wrote:
| [flagged]
| _the_inflator wrote:
| Honorable mention here for Arthur Andersen and their role in the
| Enron audit: https://en.wikipedia.org/wiki/Arthur_Andersen
| helsinkiandrew wrote:
| https://archive.is/RiaMV
| docheinestages wrote:
| [flagged]
| jacquesm wrote:
| If you don't have a reason to link a thread to ChatGPT maybe
| don't make them up?
| SilverBirch wrote:
| 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 - 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.
|
| Also, from a dynamics perspective, this is a lot like the
| insurance industry. In the insurance industry you can
| underestimate risk during the good times, take profits, and then
| go bankrupt in the bad times. In auditing you can spend a lot of
| money being extremely thorough - you'll lose all your customers
| because you're expensive and painful. So instead you lower your
| standards, you're cheap, you're easy to work with, and it's easy
| for a fraudster to slip through, in the 1 in a 1000 chance that
| happens the regulator comes down on you like a tonne of bricks.
| Well ok, but was EY less competent than McKinsey or did they just
| get unlucky that they're the poor bastards who stepped on the
| landmine?
|
| Well, maybe in this case we should learn from the insurance
| industry and institute some sort of fund that all auditors pay
| into that pays out in the case that fraud is discovered.
| AniseAbyss wrote:
| [dead]
| hef19898 wrote:
| The auditing arm of EY is in a completely different _industry_
| than McK and similar firms.
|
| That EY's auditing track record is, well, checkered is a
| different problem. By throwing those two into the same bucket,
| so, shows some lack of understanding of auditing, accounting
| and consulting. EY also does, sometimes legally required
| "consulting" work for in the accounting space. That work is
| completely different from stragoc management consulting ala McK
| and BCG. And it also a different beast than the lower level
| outsourcing consulting ala Accenture.
| lordnacho wrote:
| What never made any sense to me was the incentives. Is the
| company supposed to hire people to write a public report saying
| the company committed fraud? It doesn't really seem like it
| makes sense for anyone. If anything, you'd just do some minimal
| performative work to say you had a good look in the company,
| and then you pick up more work next year. If you write a
| critical report, how many companies will want to hire you? I'll
| pick the easy going auditor who doesn't give me a hard time,
| thanks.
|
| Contrast that with say an HMRC tax audit. They're not there to
| be your friend and it actually makes sense for them to
| investigate certain firms.
|
| It would be interesting to read a history of the industry to
| see how we ended up here.
| jsmith99 wrote:
| The auditors are appointed by the audit committee which
| consists of board members who are non executive directors
| i.e. they are not involved in the day to day running of the
| company and so theoretically should be independent and
| interested in uncovering any wrongdoing by management.
| krn wrote:
| > Well ok, but was EY less competent than McKinsey or did they
| just get unlucky that they're the poor bastards who stepped on
| the landmine?
|
| I have asked myself the same question, before I noticed that EY
| is basically the Credit Suisse and the SoftBank of the audit
| world[1]:
|
| > EY has been involved in many accounting scandals: Bank of
| Credit and Commerce International (1991), Informix Corporation
| (1996), Sybase (1997), Cendant (1998), One.Tel (2001), AOL
| (2002), HealthSouth Corporation (2003), Chiquita Brands
| International (2004), Lehman Brothers (2010), Sino-Forest
| Corporation (2011), Olympus Corporation (2011), Stagecoach
| Group (2017), Wirecard (2020), Luckin Coffee (2020) and NMC
| Health (2020).
|
| In fact, Wirecard managed to partner with EY, Credit Suisse,
| and SoftBank simultaneously just before going bankrupt.
|
| Maybe because no reputable companies wanted to touch it?
|
| [1]
| https://en.wikipedia.org/wiki/Ernst_%26_Young#Accounting_sca...
| hef19898 wrote:
| Well, EY started as part of Andressen (?) and was as such
| part of the Enron scandal. We shouldn't ignore the scandal of
| the century. EY so is a very reputable accounting firm.
| Unreputable would be the Metaverse headquartered shop FTX
| used.
| tim-- wrote:
| You might be thinking of Accenture, which was founded from
| the ashes of Andersen Consulting.
|
| Andressen is one half of Andreessen Horowitz (a16z) which
| (I think?) doesn't have any connection to Enron.
| Zafira wrote:
| Accenture is Andersen Consulting. It left and changed its
| name to Accenture because of internal infighting and
| politics prior to the Enron scandal that took down
| Andersen entirely.
| er4hn wrote:
| The OP is thinking of "Arthur Andersen", the accounting
| firm that serviced both Enron and Worldcom. The first
| paragraph of Wikipedia cites the scandals as factors in
| enacting SOX (src:
| https://en.wikipedia.org/wiki/Arthur_Andersen)
| [deleted]
| andrewjl wrote:
| > The auditor has a responsibility to plan and perform the
| audit to obtain reasonable assurance about whether the
| financial statements are free of material misstatement, whether
| caused by error or fraud.1 Because of the nature of audit
| evidence and the characteristics of fraud, the auditor is able
| to obtain reasonable, but not absolute, assurance that material
| misstatements are detected.2
|
| https://pcaobus.org/oversight/standards/auditing-standards/d...
| [deleted]
| jll29 wrote:
| If a CEO mismanages and goes bankrupt, they cannot start another
| company for 5 years; a two-year ban seems mild, but better than
| nothing, as the reputational damage is substantial (why would any
| non-criminal pick EY afterwards in good faith if there are
| others?).
| helsinkiandrew wrote:
| As well as a EUR500K fine, five employees were also fined
| between EUR23,000 and EUR300,000. And seven others escaped
| punishment by handing back their auditor's licences.
|
| I'm not sure many reputable public companies will be queuing up
| to use their services in 2 years time
| hef19898 wrote:
| If a certified and liscenced auditor in Germany returns his
| liscence, well, that person just ended their professional
| career. So the alternativr seems to have been considerable
| worse. Rightly so, Wirecard was a fuck up of epic
| proportions.
| shortrounddev wrote:
| Really? 5 years? That seems really harsh. Is it all business
| failures or does it have to be due to mismanagement? I've heard
| the climate is very hostile to businesses in Germany; my sister
| in law was trying to sell art on etsy and apparently she had to
| get a business license to do so in Germany. She's now back in
| the USA where she can just sell stuff online and the only thing
| she needs to do is file her taxes correctly
| avianlyric wrote:
| > Really? 5 years? That seems really harsh. Is it all
| business failures or does it have to be due to mismanagement?
|
| There's a big difference between bankruptcy and business
| failure. Plenty of businesses fail without entering
| bankruptcy, they're wound down responsibly and their
| creditors are repaid in full.
|
| If a company fails due to bankruptcy, then it means that
| people who lent money to that business are out of pocket, and
| end up paying for the failure.
|
| The whole point of "limited liability" companies is that the
| owners and management are shielded from creditors in the
| event of bankruptcy (hence the " _limited_ liability"). So a
| five year ban (which is true in most countries) from
| directing another limited liability company is reasonable, it
| don't prevent your from running a business, only from running
| a _limited liability_ business, because there's now evidence
| that in the event of failure you'll leave your creditors high
| and dry.
|
| Ultimately the privilege of running a _limited liability_
| company, where the state promises to protect you from your
| creditors if things go wrong, is just that, a privilege. If
| you prove yourself unable use that privilege responsibly,
| then that privilege is temporary taken away. To be clear, the
| privilege removed is _protection from creditors by the state,
| if your business fails_. You can absolutely start another
| business, it's just that the state won't protect you if you
| fail.
| adrr wrote:
| You can also screw over your creditors without declaring
| bankruptcy. Just stop paying your bills. Elon is famous for
| not paying creditors at twitter. Bankruptcy is just a way
| to get relief from creditors and prevent them from suing
| you.
| AbrahamParangi wrote:
| The counterpoint is what's the point of reducing losses on
| bankruptcy if it makes the entire business climate worse?
| By trying to protect creditors you just make everyone
| poorer.
| avianlyric wrote:
| Does it? For most companies their creditors are other
| businesses that they're sourcing supplies from. What
| makes you think those businesses can afford to take the
| hit?
|
| Ultimately most of the real creditors to small and medium
| businesses are other small and medium businesses. So if
| you offer no protection to them at all, you either get
| extremely risk adverse companies that refuse to offer any
| sort of credit (such as 30 day invoices), or a single
| business failure ends up causing a cascade of failures
| all of their suppliers take the hit, and also go out of
| business.
|
| Ultimately increasing the trust between businesses, so
| they're able to extend thing like 30 day invoices as
| standard, substantially improves the business climate. It
| reduces the barrier and risk of everyday business
| transactions, makes it easier for businesses to manage
| their cashflow, and ultimately allows businesses to grow
| faster and in more robust manner.
|
| None of this is about protecting lenders like banks, or
| investors. Most of the time they screwed anyway, it's
| about protecting other businesses who's primary function
| isn't financial risk management.
| bcrosby95 wrote:
| Who says it makes it worse? Limited liability is a
| privilege not a right, as such it can be taken away from
| you if you can't act responsibly.
| AuthorizedCust wrote:
| Just because the government claims something to be a mere
| privilege does not justify bad policy.
| avianlyric wrote:
| We could go back to bad old days, where business owners
| were directly exposed to their creditors. Business fails,
| say goodbye to home, car, personal savings. If that's not
| enough, off to the debtors prison with you, you can work
| till you've repaid your business debts.
| KyeRussell wrote:
| This is an ideological take, and an American one at that.
| Not necessarily a fact.
| AuthorizedCust wrote:
| It reflects a system where that shields creditors from
| fewer risks. Nothing wrong with that per se.
| Kamq wrote:
| I mean, fair, but when even the Americans are saying to
| let the investors lose their shirts, you might want to at
| least think about it.
| mpweiher wrote:
| This isn't about investors, it's about creditors.
| DANmode wrote:
| Investors and/or startup loans, depending on structure,
| are generally right at the top of the list of creditors.
| anonymouskimmer wrote:
| https://www.investopedia.com/ask/answers/09/corporate-
| liquid...
|
| > Shareholders are often last in line to receive proceeds
| with preferred stock shareholders getting better
| treatment than common stock shareholders.
|
| Loans aren't shares; not even early loans. Else they'd
| get much better returns from the successful businesses.
| Kamq wrote:
| Also fair, I used the wrong word there.
|
| Though, I don't think the distinction really matters
| within the context of my point. Both investors and
| creditors are exchanging money for a bet on future profit
| derived from the company being solvent in the future and
| having extra money to either pay back debts or pay out
| dividends.
|
| My point is that America tends to get a lot of flak for
| rigging the system in favor of those with excess money
| (some of it is even fair). My point is that if you want
| to structure your system past what we're willing to do,
| you may want to stop and think for a second about if
| that's what you really want.
|
| Now, if you want to protect the money of people with
| extra money to lend out, that's absolutely fine. It's a
| completely internally consistent position. But my
| understanding is that it's not that popular of a
| position, so I'm surprised the system is set up this way.
| mpweiher wrote:
| > Both investors and creditors are exchanging money for a
| bet on future profit derived from the company being
| solvent
|
| Nope, that's still just investors.
|
| Creditors are not people who made bets on the company's
| future profits. Creditors are people who the company made
| legally binding contracts with to pay them. For example
| people who provided products and services who are getting
| stiffed. Also: taxes due.
|
| Even a bank loan is not a bet on the company's future
| profits. A bank loan is a contract that says you _will_
| repay the money lent, with interest. Irrespective of
| profitability.
|
| Which is why a limited liability company usually can't
| get credit unless it is also guaranteed by someone else.
| Because with no outside guarantees, it _would_ be a bet.
| (Yes, convertible bonds exist, but different topic).
| Kamq wrote:
| I think you misinterpreted my statement here. The future
| profit I'm talking about is the profit of the creditor
| (or investor).
|
| That being said, I completely disagree with this part:
|
| > Creditors are not people who made bets on the company's
| future profits.
|
| Nope, that's not how reality works. If the company
| doesn't have the money (including their assets), you
| aren't getting paid.
|
| Extending credit is fundamentally a risk. That's one of
| the reasons credit card companies charge interest.
| anonymouskimmer wrote:
| Screwing over the bond market by screwing over owners of
| your company's bonds make the entire investing and
| general retirement and pension climates worse.
| Retirements and pensions are often guaranteed _in part_
| by the government, with tax funds. Tax increases and
| retirement deficits directly hit consumers in their
| ability to consume, and at least a few years back
| consumers were responsible for about 2 /3rds of GDP (in
| the US, at least), so a bit more important than the
| business climate itself.
|
| And that's without even factoring in the effect of
| bankruptcy on consumers employed by the bankrupt company.
| Employees of a bankrupt company are considered the
| highest level of unsecured creditors, but they still come
| behind secured creditors. So bankruptcy can not only
| result in an employee (who is also a consumer in the more
| general economy) losing their job, but losing their last
| paycheck and benefits coverage. Which has a consequent
| effect not only on consumption, but on utilization of
| public, tax- or fee-supported services.
|
| ---
|
| If a person bankrupts a company, they could probably use
| 5 years to let all of the lessons that they should have
| learned sink in. If you fail out of school you have to
| retake your classes in order to graduate.
| wongarsu wrote:
| Does it? You could equally well argue that punishing CEOs
| for bankruptcy makes banks more willing to lend money,
| improving the business climate.
|
| And of course for startups in the early years it's not
| that relevant anyways, since nobody will lend you
| anything until you have revenue. VCs invest instead of
| lending and aren't owed anything if you shut the company
| down.
| mlyle wrote:
| > You could equally well argue that punishing CEOs for
| bankruptcy makes banks more willing to lend money,
| improving the business climate.
|
| Banks can take into account the borrowing history of the
| executive teams already.
|
| > And of course for startups in the early years it's not
| that relevant anyways, since nobody will lend you
| anything until you have revenue.
|
| Being unable to make payments on leases, etc, is pretty
| likely for startups that fail.
| AbrahamParangi wrote:
| Well, you're basically taking something (cost of capital)
| that could be priced (via interest rates and collateral
| requirements) and turning it into a regulatory barrier.
| Personally I doubt that that is better, and I think the
| general consensus is that it is quite a bit harder to do
| business in those places with these regulations.
| qwytw wrote:
| 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 afford expensive lawyers
| or consultants will suffer from such a policy.
| auggierose wrote:
| Germany is not small to medium business friendly. No need
| to argue about that.
| kazen44 wrote:
| do you have any sources for that? Considering that in
| germany, the "Mittelstand" is the major economic engine
| powering the economy compared to major corporations.
| galleywest200 wrote:
| Is it possible to have declared bankruptcy with no
| creditors? Can you just spend all of your own money down to
| zero? Would you still be banned due to losing only your own
| money?
| toast0 wrote:
| Bankruptcy is something you get into when you can't pay
| debts to your creditors.
|
| If you have no debts, and thus, no creditors, you can't
| go bankrupt by definition. Of course, if there are
| government fees or taxes to pay, the collector of those
| becomes a creditor. You would want to formally close the
| business so that it doesn't accrue annual fees and force
| you to do more paperwork.
| avianlyric wrote:
| I think it would be very difficult to achieve, you would
| somehow need to convince a bankruptcy court to accept
| your bankruptcy, despite having no creditors.
|
| If you spend all your money down to zero, then the normal
| thing is to just have your company dissolved and struck
| of the companies register. For which there is no
| consequences, you just tell the state your business is no
| longer operating, they make a note of that, and that's
| it. Business dissolved, you get on with your day.
| ChuckNorris89 wrote:
| _> she had to get a business license to do so in Germany.
| She's now back in the USA where she can just sell stuff
| online_
|
| If you want to sell in the Germany, get a business license
| from Estonia or Romania or some other low-cost low-bureocracy
| EU country, and pay your taxes there. Germany is still living
| in the business climate of the '60s.
| tom-from-july wrote:
| This is terrible advice and you or actually your Estonian
| company will be fined for tax fraud.
|
| In Germany income is taxed where it is generated, which
| includes the head of the person running the business. So if
| you run your foreign company from Germany - which is expect
| to be the case if you have no physical permanent office in
| Estonia, where you also have to be regularly present - you
| home is considered to be an business location and thus you
| are taxed accordingly.
|
| Note that this only applies to limited liability companies.
|
| If you are a single person with no need for limited
| liability, just register an individual business
| (Einzelunternehmen) with your local authority (Gewerbeamt).
| It's really easy, cheap and if you need support, tax
| consulting for individual business is rather cheap as well
| and worth it if your business generates regular income.
| Otherwise you can just talk to the authorities, because
| income from passion projects (i.e. non-regular, without the
| goal of generating a substantial income amount) is not
| taxed at all.
| ChuckNorris89 wrote:
| _> In Germany income is taxed where it is generated_
|
| Only if you're a resident in Germany, But if I live
| somewhere in the EU and sell something to someone living
| in Germany I don't owe income tax to the German
| government.
|
| I pay my income tax where I'm a fiscal resident (Estonia,
| Romania, etc.)
| tom-from-july wrote:
| Lucky you in this case, not having to learn and deal with
| all this then :) But the original comment was about
| someone living in Germany (at least at the time)
| martinald wrote:
| Which single person doesn't need limited liability
| though? In my experience small freelancers/businesses
| need that protection much more than bigger organisations,
| which can afford legal fees and court costs if things go
| south.
|
| If you are a freelancer trading without a corporate
| entity you can get screwed so hard. There are nasty
| people out there that will take advantage of this and can
| demand loads of free work or refunds, knowing that your
| entire personal wealth is on the line.
| bitL wrote:
| That's why one should just move to Dubai and escape
| Germany and its crazy taxes and health insurance costs.
| robocat wrote:
| 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 Arab Emirates, and the Sharia-influenced debt
| offences have even led Interpol to circulate red alerts
| to capture indebted Europeans attempting to flee the UAE.
| There have been previously recorded cases of foreign
| workers being prevented from leaving the Emirates after
| being blacklisted for simply missing one credit card
| payment or bouncing a cheque. As a result, many expats
| are forced to abandon their lives to avoid jail time,
| often with their car keys still in the ignition.
|
| I would bet they fixed their information systems, and you
| couldn't now leave if you happen to screw up.
|
| https://www.carkeys.co.uk/news/the-story-behind-dubais-
| aband...
| hef19898 wrote:
| Taxes are due where the business is managed, where the
| rwvenue is coming from and where tax authorities consider
| you a company of being a resident. So in your example, the
| Estonian company will still pay taxes as a German company.
| Which is explicitly stated in the tax treaty between
| Estonia and Germany.
| charlieyu1 wrote:
| You know, all regulations only hurt small sellers, people at
| the "top" always get away from all the crap they are directly
| responsible for, no matter they are hurting their own
| business or the society as a whole
| Timon3 wrote:
| It's the wrong take-away to say all regulations only hurt
| small sellers. Do you want to give up regulations on child
| labor, or worker safety, or foods and drugs? If not, how
| come, considering it all hurts only small sellers?
|
| The problem isn't the concept of regulation, but the
| follow-through on loopholes. By doing away with regulations
| you'll decrease quality of life for most people. Instead we
| have to find ways to react to loopholes in a fair way. It's
| not impossible, we've done it before, see the previously-
| mentioned examples!
| charlieyu1 wrote:
| I don't think small sellers have anything to do with
| child labour. And since you mentioned loopholes, it is
| always the big players who get away with loopholes that
| small business owners do not
| Jochim wrote:
| Business owners get away with breaking violating the law.
| Small businesses are infamous for paying people under the
| table, stealing wages, not giving appropriate breaks,
| employing children etc.. The size of a business only
| affects the kind of laws they're likely to get away with
| breaking.
| piaste wrote:
| > I don't think small sellers have anything to do with
| child labour.
|
| This is a remarkable claim. Why would you think that?
| akiselev wrote:
| Small sellers aren't worth even going after until they
| reach a certain size for huge swaths of the regulatory
| regime.
|
| See, for example, UL/CE and FCC regulations - unless they
| burn something down or interfere with emergency services,
| businesses can usually defer the regulatory cost till
| they can afford it. Or the FAA, which gives out slaps on
| the wrist like its going out of style, as long as the
| offender is not an airline.
|
| Case in point: many countries allows underage family
| members to work for family businesses and even the ones
| that don't, barely enforce it. A factory hiring dozens of
| kids? That's a lot less likely to go unnoticed.
| KyeRussell wrote:
| [flagged]
| mlyle wrote:
| Digging into his post history to avoid refuting his point
| (which is overstated) is ... not appropriate? great?
|
| I can pretty easily agree with a weaker version of his
| statement: regulations have a disproportionate impact on
| small entities. They're expensive to comply with, and
| small entities tend not to have access to the exotic
| legal tricks and arms-length interaction with regulations
| that can make them much less effective.
| LadyCailin wrote:
| For the first one, if we can agree the regulation is
| good, then so be it. If your business can only thrive by
| hurting other people, you don't get to be in business,
| that isn't a more fundamental right than not being harmed
| by businesses. For the second, the solution is to plug
| loopholes that allow businesses of any size to bypass
| regulations. In no case is it the correct solution to get
| rid of good regulations.
| mlyle wrote:
| > For the first one, if we can agree the regulation is
| good, then so be it.
|
| IMO: If we can agree that the regulation _has a net good
| effect_ , considering externalities and adverse effects.
| Having a "good regulation" that also increases
| concentration of control in an industry can end up being
| a net negative.
|
| > For the second, the solution is to plug loopholes that
| allow businesses of any size to bypass regulations.
|
| This is a nice thing to strive for, but in practice
| layers of indirection and ample legal counsel
| accomplishes a lot even in well-run democracies (even
| leaving aside how large organizations often influence how
| they are regulated in both direct and indirect ways).
| charlieyu1 wrote:
| Don't want to sway away from the discussion, but it's
| probably the first time for ages I'm called a
| libertarian.
| simplotek wrote:
| > Really? 5 years? That seems really harsh.
|
| Bankruptcy is not a mild consequence. People can and often
| are ruined by a bankruptcy, not to mention the harsh impact
| that it has on employees who are suddenly forced out of a
| job. Declaring bankruptcy should not be considered as
| something mundane or yet another run-of-the-mill managerial
| decision.
|
| Also, not being able to found a company is not what I would
| call "harsh". Even in a purely capitalist view of society, a
| entrepreneur needs to focus on ventures to ensure they are
| successful, and "failing fast" does not mean it's ok to file
| for bankruptcies.
| martinald wrote:
| But a lot of businesses fail for reasons other than the
| directors "mistakes". The general macro trend has a lot to
| do with it. Should the owners of a cafe or bar that went
| under owing suppliers some money during covid be banned
| from starting a new business? Or someone who buys a failing
| business trying to turn it around and failing also be
| barred for 5 years?
|
| At the end of the day, creditors must (and generally do)
| realise when supplying a limited liability company there is
| a risk that the company goes under you won't get paid.
| That's why credit insurance and credit control departments
| exist.
|
| If the directors were committing fraud by misrepresenting
| the state of the business and it fails, that is a
| completely different thing and directors should be barred
| from trading. But businesses fail all the time and we must
| accept that. Barring people from trying again for 5 years
| isn't a great solution imo.
| simplotek wrote:
| > But a lot of businesses fail for reasons other than the
| directors "mistakes".
|
| All the more reason why entrepreneurs should not take
| lightly the prospect of filing for bankruptcy, and should
| focus their energy on ventures where they can minimize
| the chance of burning through cash right into bankruptcy.
| Otherwise it starts to sound like these serial
| entrepreneurs are just flinging crap at a wall to see
| which one will stick with little to no effort. This is a
| massive disservice to investors and employees alike, if
| not outright fraud.
| detuur wrote:
| The 5-year ban is not an automatic outcome, I believe.
| Afaik it's imposed specifically in cases of gross
| mismanagement/fraud.
| mantas wrote:
| Can't speak about Germany for sure, but usual euro way is you
| don't need to do taxes at all if you do not run a business.
| Employer fills it for you. And getting a doing-business-as-
| individual is as simple as filling a form at revenue service
| website telling you're starting a business. Then you get a
| tax ID to put on your invoices next day.
|
| If you sell as an individual, it's just you selling random
| stuff that you don't need to pay taxes for. Once you do this
| as a business, you declare it as such and notify the state
| about it.
| belter wrote:
| Many other countries have similar laws. Normally get's solved
| by buying an existing business...
| brookst wrote:
| So as a super talented CEO, would you take any jobs trying to
| save a failing company?
| ck45 wrote:
| It would be an interesting idea to make auditors fully
| accountable like bankruptcy advisors. I know, this is never
| going to happen.
| angus-prune wrote:
| The current problem is that the insentives are all wrong.
|
| It is the company being audited that gives the auditers the
| business. Its not in the interests of a dodgy company to
| appoint a good auditor, and its not actually in the auditors
| (short term) interest to uncover wrongdoing as it just means
| they'd lose a client.
|
| My proposal is that you _require_ every company to have
| insurance to cover the risks, making the insurers fully
| liable for fraud (and any other business risk that audits
| protect against).
|
| Companies then don't appoint their own auditors, but the
| insurers do. Its in the insurers interest to make sure that
| any audit is effective as they're on the hook for any
| liability the audit misses.
|
| This way the insentives for the auditors are aligned with the
| interests of the people relying on the audit (shareholders,
| customers, suppliers).
| bradleyjg wrote:
| There was something like this with bonds pre 2008 but it
| didn't work out like you suggest.
|
| Rating agencies were, and are, paid by bond issuers are
| rated a bunch of synthetic real estate backed bonds as very
| safe. But then on top of that, certain of these bonds were
| insured---notably by AIG. However, AIG just rubber stamped
| the ratings and ended up going bankrupt when the crisis
| hit.
|
| The real mismatch of incentives is one layer deeper than
| your comment suggests. An insurance company CEO can do very
| well for himself underpricing insurance. The business grows
| as premiums roll in and he collects a bunch of bonuses.
| When the SHTF he could just resign and collect his golden
| parachute.
| bostik wrote:
| The Maltese gambling regulator did something like this back
| in 2016. While the idea is good (and I support the practice
| _in principle_ ), it was a dismal failure in aggregate.
| Devil's in the details.
|
| The regulator pre-negotiated approved rates and vetted a
| bunch of companies, all of which had to had presence in
| Malta. The audit reports have to be turned by mid-June,
| IIRC, and they can't really start until the accounts for
| the previous year have been finalised. So in practice the
| audits _must_ take place between late February and mid-May.
| At the time the entire nation of Malta had about 450k
| people in total, and each audit blocks two accredited
| people for approximately three weeks.
|
| Turns out there are a _lot_ of gambling companies
| registered in Malta, and each pair of auditors could only
| process 5-6 companies within the allotted time. The country
| would have run out of auditors ... so they licensed a whole
| lot of local smaller shops as accredited gambling auditors
| to make up the numbers. Many of whom did not have the
| technical knowledge to actually even _assess_ , let alone
| _understand_ the businesses they were assigned to.
|
| And I can say this from painful experience: there is real
| value having the same team of auditors for 2-3 years
| running. They will get to know how your company operates,
| and any good ones will figure out entirely new questions to
| ask you from year to year. By all means, be an adversarial
| assessor, but at least please be clued in.
|
| Disclosure: on the receiving end as a key person in
| technical audits since 2015.
| [deleted]
| [deleted]
| EarthIsHome wrote:
| This is still fallout from the wirecard debacle.
| ck45 wrote:
| The wirecard scandal on Wikipedia:
| https://en.wikipedia.org/wiki/Wirecard_scandal
| wjnc wrote:
| Look, these sentences are probably more than just and even on the
| light sight. Handing in your auditing license is a pretty severe
| punishment, at least career changing. But will the risk and audit
| professionals at BaFin face the same penalties?
| lima wrote:
| The head of BaFin and their deputy were forced out over it and
| the agency is undergoing significant restructuring[1], and a
| new agency was formed specifically for investigating financial
| crimes[2].
|
| In terms of actual liability - no, at least not yet. A number
| of lawsuits by individual investors were thrown out[3] but it's
| possible there will be public prosecution:
|
| > _Criminal prosecutors in Frankfurt are assessing whether
| BaFin employees obstructed justice by not properly
| investigating fraud warnings._
|
| In the end, it's a regulator, they have to rely on auditors to
| some point. If Wirecard lies and EY doesn't catch it, that's on
| the criminal and the auditor. Still, it's hard to understate
| just how badly the agency fucked this one up... Hopefully,
| it'll serve as a true wake-up call.
|
| Certainly seems like it - they have been more aggressive
| recently with other problem companies like N26, Solaris Bank,
| Coinbase, Deutsche and others.
|
| [1]:
| https://www.ft.com/content/4f948457-678e-485c-92f7-2837064a5...
|
| [2]:
| https://www.ft.com/content/587b6c52-c93e-4b2c-949a-53f6a1667...
|
| [3]:
| https://www.ft.com/content/9fab6842-4ee6-4114-a35c-09bf9c62a...
| stametseater wrote:
| > _The head of BaFin and their deputy were forced out over
| it_
|
| They tried to get innocent people put in prison. They belong
| in prison themselves. If all that happened to them was losing
| their careers, then they haven't been brought to justice.
| lima wrote:
| Who is "they"? The head of the agency? Their advisors?
| Individual employees? Politicians? Failure of this
| magnitude is almost always a systemic failure.
|
| Actually figuring out who, if anyone, committed a crime
| (through gross negligience, willful obstruction, or
| similar) will take years.
| wjnc wrote:
| To reply to just one sentence: From my experience the
| relationship between auditors and financial (prudential)
| regulators is only lightly one of relying upon. On the one
| hand of course having trouble getting your financial report
| signed is a key risk indicator for the regulator, on the
| other hand the regulator in my sector (insurance) goes
| markedly deeper in their thematic and on-site reviews than
| the auditors do. Even though the auditors sign off on things
| like capital requirements, the regulators understand models
| way better. Those building proper models usually don't work
| for the big-4 that do auditing, but work for more niche firms
| and the insurers themselves.
|
| I've worked for a regulator in a sector with more lenient
| oversight (health) and there the accountant was one of the
| pillars of our understanding. We just didn't have the mandate
| or capabilities to understand the finance of the thousands of
| providers. In that way regulating finance is easy. Banks and
| insurers are relatively low-N activities. In case of BaFin I
| find it hard to imagine that they couldn't, so they probably
| wouldn't.
|
| Food for another thread is how to match the European
| perspective above to, say, the SVB case in the US. How on
| earth the regulator didn't track the interest rate risk is
| beyond me. (I believe the legal explanation is that they fell
| in a D-F regime with less regulatory burden.)
| fauigerzigerk wrote:
| BaFin's role in this is indeed pretty astonishing:
|
| _" The German financial watchdog has filed a criminal
| complaint against two Financial Times journalists and several
| short sellers, accusing them of potential market manipulation
| over reports about suspected accounting irregularities at
| payments processor Wirecard."_
|
| https://www.ft.com/content/8e1948be-6060-11e9-b285-3acd5d435...
| FabHK wrote:
| Indeed, they failed big time. Apparently some BaFin employees
| were also trading the shares of Wirecard (and presumably
| other companies they were supposed to oversee).
|
| There's a pretty good book on the whole sad story: _Money
| Men: A Hot Startup, A Billion Dollar Fraud, A Fight for the
| Truth_ by the FT journalist that did most of the digging.
|
| If journalists and short sellers hadn't kept pushing (against
| Wirecard, auditors, and BaFin), Wirecard might have survived
| a bit longer, managed to acquire Deutsche Bank, and then
| (with the merged balance sheet) gotten away with it. Mind
| boggling.
|
| However, I must say, after reading that book and several
| articles about the whole thing, I am still not quite sure how
| they could keep up the fraud for so long, what exactly
| happened there, and who benefited.
|
| (I suspect that crypto firms have taken over a lot of
| Wirecard's "business"...)
| everybodyknows wrote:
| If they do, they'll be tempted to rat out the political
| overlords who dictated the "see no evil, hear no evil" policy.
| BonoboIO wrote:
| [flagged]
| dang wrote:
| Could you please stop posting unsubstantive comments and
| flamebait? You've unfortunately been doing it repeatedly.
| It's not what this site is for, and destroys what it is for.
|
| If you wouldn't mind reviewing
| https://news.ycombinator.com/newsguidelines.html and taking
| the intended spirit of the site more to heart, we'd be
| grateful.
| rvba wrote:
| Audits in general are such a joke. Rubber stamping and checks
| done by students or graduates who barely understand what they are
| doing. And even if they detect something, it is considered as not
| material and ignored.
|
| From business perspective the auditors are clueless.
|
| I dont claim that audits are bad, they are very needed. But the
| execution in many ways is so poor.
| oblio wrote:
| > From business perspective the auditors are clueless.
|
| Hey! I used to be a young IT grad helping with financial
| audits.
|
| If it helps, I was young and clueless and frequently I still
| figured out more about the business processes I was auditing
| than the client employees taking care of them every day :-p
| ocimbote wrote:
| From my experience, you're the exception, not the norm.
|
| Many audits and compliance frameworks have so many loopholes
| and DIY rulings that basically anything is possible and
| acceptable as long as whatever you're doing is written
| beforehand.
| oblio wrote:
| Well, I'm not talking about everything, or the high level
| picture.
|
| But I was checking what were called "IT controls" for their
| systems and a lot of that stuff was straight forward and
| yes, it did involve some rubber stamping, but a lot of it
| made sense: "Do you have a written approval process for
| adding users to this sensitive system?". "Can you show us
| how you mitigate not having a written process?".
|
| And it wasn't super rare that besides the fact they didn't
| have the thing I asked for, but sometimes I couldn't even
| get them to understand why it would be a good idea.
|
| A lot of companies are the Wild West :-)
| nimbix wrote:
| I worked at a company that had to deal with EY as a part of a
| tech certification. Tha auditors barely knew why they were
| being sent over. Out managers and techs had to explain the
| process to them and assure them the numbers in the report were
| correct. The auditors happily accepted that, and then charged
| around 100k. Top job.
| rvba wrote:
| That is a standard audit of any BIG4 company.
| fnordpiglet wrote:
| All audits should be disclosed in giant black letter on the
| front "PAID FOR BY THE AUDITED COMPANY"
|
| The conflict of interest in external audit is absurd. It's
| similar to securities rated rating agencies paid to rate the
| instruments by the issuing company.
| b0afc375b5 wrote:
| As a former CPA/External Auditor this fact confused me the
| most. No amount of disclosure will avoid the reality that the
| food on my table (audit fee) depends on the clients I am
| supposed to be impartial to. This system seems blatantly
| idiotic to me.
| cjbgkagh wrote:
| The audited company often buys consulting services from the
| auditors which in effect is an extra incentive on top of the
| moneys paid for the auditing service. The mechanism that
| allows this is the 'Chinese wall' but that is a total joke.
| What really need to happen is to separate out consulting from
| auditing. That's not going to happen though as there is just
| so much money is consulting.
| fnordpiglet wrote:
| What should happen is audit becomes a public trust financed
| by a tax on all public companies.
| heisenbit wrote:
| Which in turn creates the issue of how to keep this trust
| truly independent. There have been successful long term
| campaigns to wrest control of supposedly independent
| bodies and align them with special interest groups.
| fnordpiglet wrote:
| Today they're explicitly not independent, that seems
| specifically worse. There are also examples of highly
| effective regulators. Financial services is actually
| replete with them.
| cjbgkagh wrote:
| Audits can be very expensive and finding the optimal
| depth of auditing is difficult and unlikely that a public
| trust would be anywhere close to optimum amount.
| Financially savvy people should already know that the
| audit process is flawed and should not simply be accepted
| on face value. How flawed is usually stated in the audit,
| checks are split into controls testing and substantive
| testing. Usually the cheaper the audit the less
| substantive testing that is done. People need to trust
| audits less not more. If an organization is unable to
| pass an audit then it's a really bad sign, if they have
| to hire EY to pass an audit then that is also a bad sign.
|
| Also have you ever tried to stop something that makes a
| ton of money? It is damn near impossible. If governments
| had that much power the people who would lose their money
| have a very strong incentive to invest a large portion of
| that money into regulatory capture. So any solution that
| uses government must be predicated on a non-corruptable
| government which do not exist, at least not for very
| long. A variation of auditor's prudence. A lot of our
| traditions and institutions that are resistant to
| corruption were designed and maintained that way to
| support wealth extraction via expansive empires, as you
| can't export wealth if it all disappears into corruption.
| And empires must export wealth from colonies in order to
| compete with other burgeoning empires. Without such an
| empire to support the resistance to corruption erodes as
| the mechanism to reward those who eschew corruption
| disappears. It becomes increasingly difficult to acquire
| power without first being corrupt.
| fnordpiglet wrote:
| Here's a counter example: going public. The SEC does a
| deep probe, one that has material teeth, and "yes" isn't
| a conclusion. Surely the SEC is subject to these forces?
| Another example is merger approval, along antitrust and
| other regulations. This is a very deep process, clearly
| with a lot of extremely powerful money on the line. Or
| another, tax collection. Fact is there's actually a lot
| of examples of effective controls on business,
| _especially_ when financial crimes or malfeasance are the
| target. The laws are particularly sharp in the finance
| world compared to say, food safety or other regulatory
| areas that are clearly captured.
| cjbgkagh wrote:
| The laws are only sharp in the finance world because it
| is more profitable for it to be that way which I think
| prevents it from being a counter example. Take for
| example the Positive Accounting Theory of Watts and
| Zimmerman which seeks to explain actual accounting
| practices as opposed to academic accounting practices.
| One of their findings was that due to the costly
| signaling nature of audits some companies will do more
| extensive audits than would otherwise be standard or even
| optimal. There is value in trust and that value can be
| captured in the form of decreased cost of debt from
| lenders and an increase in stock price. Without trust the
| whole financial industry implodes and that would be bad
| for just about everyone in finance and especially bad for
| those making the most money from it.
| throwaway18875 wrote:
| I once worked at a small pen-testing firm that also conducted
| PCI DSS compliance tests, and I can confirm that this is an
| accurate depiction of the industry. A majority of the staff
| were recent grads, and it was disheartening to see that most
| clients were primarily interested in obtaining the compliance
| certification rather than genuinely improving their product
| security. This, in turn, creates a perverse incentive for
| auditors to grant compliance, as clients who don't get the
| desired outcome may simply switch to a different auditor. In
| such a setup, it's difficult to ensure that security standards
| are genuinely upheld. On a positive note, these compliance
| tests do help in making sure that card data isn't stored in
| plaintext, but beyond that, the overall impact on security
| seems rather limited.
| Jcampuzano2 wrote:
| Not financial sector, but in my own experience working in
| tech consulting partnering with large management consulting
| firms in the past, security was the last thing to get checked
| and the first thing to be neglected.
|
| Sure there were some "bare minimum" things that was expected
| to be upheld like passwords not being in plain text, but come
| time for a security audit it was exactly as you say. Not done
| out of genuine interest in security but as a rubber stamp of
| items to be able to show the client "look we did this"
|
| Not even joking when I say that the development plan for most
| of these projects basically just tacked on a few days in the
| last week for "security improvements" alongside things like
| "tech debt" rather than it being a top of mind thing for the
| entire development process.
| Giorgi wrote:
| No worries, ChatGPT will eleminate ALL audit business in year or
| two anyways.
| hestefisk wrote:
| Will be interesting to see if Everest moves ahead after this.
| TheRealPomax wrote:
| "The accounting-and-consulting giant is being sued for $2.7bn by
| the administrators of NMC, a London-listed hospital operator it
| had audited and which went into administration after understating
| debts by $4bn." would be cool if the article could say why. I
| hear that's something good journalists do.
| sega_sai wrote:
| And then there is also this
| https://www.ft.com/content/5e6f15ce-9eda-4b04-883d-686617020...
| -- cheating on ethics exams by EY. It's all very funny that the
| whole system is built on assumption where the supposedly
| knowledgeable, ethical experts audit companies, but in reality,
| it nowhere close to that.
| catchnear4321 wrote:
| if only this were limited to ethics and compliance.
|
| expertise is a virtue in modern society. signaling it well is
| often easier and more successful than developing and
| maintaining it.
|
| damn lucrative, too.
|
| this is why we can't have nice things.
| pts_ wrote:
| It starts with interviews which select you based on how well
| you speak instead of what you speak.
| oezi wrote:
| They interview you on whether you were interviewed before.
| version_five wrote:
| "Cheating on ethics exam" sounds bad but it amounts to not
| taking some boring corporate CYA compliance training seriously,
| it's not actually unethical in my opinion. If anything it
| speaks to how bad corporate training is generally, not the
| ethics of the people "cheating".
| appleiigs wrote:
| Probably similar to you, I couldn't read the FT article
| because it's behind a paywall; however, I'm familiar with the
| general story. It's not some corporate training. They, plus
| many other accounting firms, cheated on professional
| licensing exams. Egregious because the accounting firms are
| doing the opposite of their sole purpose - add trust to the
| financial system.
| koops wrote:
| They cheated on the ethics exam, THEN they lied about their
| cheating.
| crazygringo wrote:
| > _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 categorized correctly. And that if fraud is
| happening, there will necessarily be numbers that don't add up.
|
| So what am I missing? Do they not have access to all accounts and
| statements? Is it just a top-level glance at the numbers because
| there isn't enough time/money to scrutinize everything? Or can
| the numbers all add up but there's still fraud?
|
| Is there anyone here who can give an example of something
| fraudulent that is hard to catch?
| niklasrde wrote:
| Plenty of things aren't necessarily evidences. Just because you
| have access to account statements telling you you got a bunch
| of money coming in from person X for provision of service Y and
| a matching contract doesn't mean that the contract has been
| fulfilled or that the service was worth the money.
|
| Same with picking a supplier - there are processes in place
| that try to assess quality, speed, price, effort, etc, but in
| the end it's humans making decisions, humans with bias and the
| ability to lie and make untrue statements as to how they made
| their decision.
|
| Then there are the usual money laundering techniques, eg art
| dealing. You could easily spend a few million $$ on art for,
| say, a big office. And the VP's niece might be an artist that
| can demand that on the open market.
| ozim wrote:
| There are different types of audit.
|
| I expect that EY does not have access to numbers and any
| account information. You give away as least information as you
| can because you cannot just trust auditing team from some 3rd
| party not to use that data in collusion with your competitors.
|
| What I expect they do have access to is documentation for
| procedures and processes. They audit for example if all
| procedures are written down and check proofs for procedures
| that were done by employees.
|
| So it is like you have to clean the toilet and you have
| procedure that whoever cleans the toilet signs list. Every end
| of the shift manager checks the list and checks toilet if it is
| clean.
|
| Fun part is having signed list for a day does not tell you that
| for half of the shift employee was only signing the list but
| did not do any cleaning and you might have dozens of customers
| seeing how terrible dirty toilet was.
| appleiigs wrote:
| > Every end of the shift manager checks the list and checks
| toilet if it is clean
|
| I think it's even worse: the shift manager checks list to see
| if the toilet is clean, but they don't actually look at the
| toilet.
| hef19898 wrote:
| Quite the opposite, EY as an aidotor has, and is supposed to
| het, access to any financially relevant data, documents and
| transactions they need to their job. That includes, among
| other things, invoices to customers, suppliers, inventory
| data and transactions, bank statements, credit card data,
| contracts with clients and suppliers and so on and so forth.
| That is actually part of a financial auditors job and
| responsibility. Yryong to minimize data access is exactly
| what Wirecard did, and EY accepted for some reason. Which
| absolutely not normal, it is in fact a major red flag.
| hahla wrote:
| It's hard to grasp how complex accounting can be for companies.
| EY is not auditing small businesses, these are large
| multinational companies and per audit guidelines they likely
| just audit random samples of accounts. It's not as simple as
| let's pull a listing of all bank accounts and make sure
| everything ties. The actual effectiveness of audits is a
| different conversation.
| mostlystatic wrote:
| Don't know much either, but I found this Money Stuff story
| interesting:
| https://www.bloomberg.com/opinion/articles/2023-01-04/privat...
|
| Someone was CFO at two companies and the auditors only checked
| the year end balance against his falsified statements. So he
| transferred money from the other company temporarily to make
| them match.
|
| """To avoid detection, Morgenthau doctored African Gold's
| monthly bank statements by, for example, deleting his
| unauthorized transactions and overstating the available account
| balance in any given month by as much as $1.19 million. [...]
|
| Morgenthau knew that African Gold's auditor would confirm
| directly with the bank the actual account balance as of
| December 31, 2021, as a part of its year-end audit. [...]
|
| Morgenthau deposited more than half a million dollars of
| Strategic Metals' funds into African Gold's bank account on
| December 31, 2021, because he knew that African Gold's auditor
| would confirm the account balance as of that date, in
| connection with African Gold's year-end audit. """
|
| https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1...
| badpun wrote:
| Interesting. I guess that is the inherent flaw of all audit
| methods which predominantly check the paperwork, while rarely
| venturing out into the real world. With sufficiently bad
| actors, the whole paperwork can be doctored and completely
| untethered from reality. Such bad actors need to only make a
| plausible Potemkin village for the controllers in selected
| spots where they are expected to verify if reality matches
| presented paperwork.
| belter wrote:
| Enron was doing similar trick by selling buildings to another
| business entity, and buying them back after the audit. I
| might not have all the details correct but it was the same
| type of shenanigans. :-)
| electroly wrote:
| > Or can the numbers all add up but there's still fraud?
|
| Yes, of course. Consider that you've set up a separate company
| and you intend to steal money from your employer. You've got a
| buddy in accounts payable that you're in cahoots with. You get
| set up as a vendor, you send invoices to the company, they pay
| them, and you never deliver anything. The company's numbers add
| up. They pay vendors for services all the time. Whether the
| vendors are real, the contracts are legitimate, and the
| expected services were provided isn't on the account
| statements.
| someweirdperson wrote:
| Wirecard was the other way around. Send invoices to companies
| that don't exist, and transfer the earnings to a bank account
| that does not exist either. Don't forget to pay taxes of
| couse. Get bonus payments and earn nicely on rising stock
| prices.
| AndrewKemendo wrote:
| >you never deliver anything
|
| A thorough audit would reveal this as well though, as it
| would actually evaluate the entire supply chain is actually
| working as intended.
| electroly wrote:
| Right--this is a demonstration of how an audit is more than
| looking at double-entry accounting statements and "seeing
| if the numbers add up." That's the point of my post.
| toast0 wrote:
| Version two of this fraud is you do supply something, but
| it's either a) something the company doesn't actually use,
| so you can provide a stand-in, knowing it will be stocked
| and later destroyed, b) something worthwhile that you've
| bought and marked up with help, etc.
| noisy_boy wrote:
| Just because you have access to the entire source code of Linux
| kernel, doesn't mean you'll be able to find all the bugs in it.
| Sometimes the numbers may add-up but it is the patterns which
| may be suspicious. Automation like sanity checks/pattern
| matching etc (+ ML now a days) would help a great deal but even
| then it is not a guarantee.
| puppymaster wrote:
| Bad analogy. Auditors have conflict of interests and risk
| losing clients if they keep asking too many 'wrong'
| questions. Reputable ones will refuse to sign the final
| audit. Less reputable ones will even help clients cook the
| book.
|
| It's more akin to you being denied Linux maintainer privilege
| if you keep finding bugs and annoy Linus in the forum. Which
| is hardly the case (heh).
| KyeRussell wrote:
| OP asked how auditors couldn't pick up on everything. The
| question assumed good intent. It's a fine analogy.
| johnwalkr wrote:
| "Exposure: Inside the Olympus scandal: How I Went from CEO to
| Whistleblower" is a great book that is in part about fraud by
| mergers and acquisitions.
| ryzvonusef wrote:
| > As someone who knows nothing about this area, I don't
| understand why audits won't always detect fraud.
|
| as some one who studied accounting and auditing, here is a page
| from my text:
|
| https://kfknowledgebank.kaplan.co.uk/audit-and-assurance/aud...
|
| but the tl;dr is that auditors don't provide "insurance", they
| provide "assurance", specifically _reasonable_ assurance....
| that the accounts are "true and fair"
|
| or to be put it in even simpler terms, they can't guarantee
| something fishy did or didn't happen, the transaction scope is
| just too much, they will "try their best" and do enough of a
| check to say if anything fishy pops put. > Is
| it just a top-level glance at the numbers because there isn't
| enough time/money to scrutinize everything?
|
| yes you hit the nail right on the head. Of course things have
| changed, govt have put their own requirements in addition to
| auditing standards, but still that's an adequate summary.
|
| the more through of a check, the more difficult, time consuming
| and expensive it becomes, and at some point the fraud becomes
| cheaper than the audit.
|
| but even more importantly is the mentality. There is a phrase
| we were taught "Auditor is a watchdog and not a bloodhound"
| that kind of explains what auditors are supposed to do.
|
| ----
|
| i left the field but i'll try to answer to the best of my
| ability
| itissid wrote:
| What Engineering tech/AI tech do you think could make the
| process more thorough but not proportionally expensive?
| ryzvonusef wrote:
| how do you technologize intent-detection? maybe chatgpt-x
| could do it, but that's the crux.
|
| i am NOT haying pattern recognition won't help, search for
| audit software and you will see each of the big four has
| specialized software. (here is EY's:
| https://www.ey.com/en_gl/audit/technology)
|
| the problem is the issue of perverse incentives, IMHO.
| Audit takes a butt load of time and money, and disrupt
| business while they do their thing, and pays peanuts
| frankly... and audit firms earn more from associated
| services, contracts which they can earn if they don't
| bother the management too much.
|
| yes, there are a dozen caveats and stuff, but frankly, the
| issue comes down not to technology but to people. The same
| network of people are in the few audit firms, and the spin
| out to join companies sometime later, who hire the same few
| audit firms, and so on.
| FabHK wrote:
| So, Wirecard claimed to make huge profits. Now, the auditors
| would expect to see a pile of cash in the accounts. However,
| Wirecard claimed to expand rapidly by purchasing other
| companies in Asia. Those, then, booked most of the "profits"
| and were the assets on the book. Wirecard produced bank
| statements from the Philippines claiming that they had $2bn
| cash sitting there. So, to the auditor, the numbers added up,
| and the whole story was somewhat coherent. It's just that the
| foreign businesses and that cash didn't actually exist.
| stefan_ wrote:
| Which, to be clear, is a failure of the auditor. We don't
| need auditors to make sure the numbers add up; the whole
| point of double-entry bookkeeping is "the numbers always add
| up".
| epups wrote:
| Depends on the scope of the audit. In most cases that's
| precisely what they do, make sure the numbers add up, and
| we do need that.
| ejb999 wrote:
| >>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 has $50M in annual revenues, it would be quite
| easy to send in bills for supplies that only amount to 1-2K per
| invoice over a long period of time.
|
| This kind of thing happens a lot, and without actually
| contacting every single vendor, verifying they are real, and
| verifying every thing that was purchased, can be very difficult
| to root out - especially with supplies that get used up, as
| opposed to hard assets they are supposed to be around for a
| while.
|
| When the numbers are small enough, nobody even bothers to
| verify them - even though over years they can add up to a
| significant amount of losses.
|
| I hear about stories like this all the time - it is pretty
| common.
| Aeolun wrote:
| > Is it just a top-level glance at the numbers because there
| isn't enough time/money to scrutinize everything?
|
| This seems to be the case for our EY IT audits anyway. Just
| send them the right screenshots and all the boxes will be
| ticked.
| calderarrow wrote:
| Auditors have access to all the financials, but they only audit
| a statistically significant sample, because it would be
| incredibly expensive to audit every transaction.
|
| Fraud can be easily detected if one employee is committing it.
| Fraud is substantially harder to find if two employees are
| involved, specifically 2 employees involved in internal
| controls.
|
| For instance, if you have a policy that all checks paid over
| $10k require 2 signatures from corporate officers, it's easy to
| catch a check with one officer forging the name of a second in
| order to siphon money to his 3rd party shell company.
|
| But if both officers make a shell company, they can post the
| check as usual, and the check would pass auditor checks unless
| they looked into the specific corporation being paid, which may
| be out of scope if it's a relatively small transaction.
|
| Ultimately, you don't need assurance that the financials don't
| have fraud, you want assurance that they're materially correct.
| Whether the company lost 10k to fraud or waste or incompetence
| is almost irrelevant for the investor, because the company has
| 10k less money. Obviously they'd prefer it not be due to fraud,
| but the impact on the financials is more or less the same.
|
| Source: am a CPA
| hef19898 wrote:
| As a subject of some of those audots, and as being
| responsible for a subset of relevant processes, I can
| confirm. I'd just add that, at least under SOX audits, also
| the internal controls are audited. And if those controls are
| laclong, that is a, potentially major, audit finding as well.
| lumost wrote:
| Curious, this seems like a good place to deploy AI tooling.
| If I'm involved in internal controls, I'll know what the
| auditors look for.
|
| If an AI can augment the auditors to find more suspicious
| transactions such as to companies with no employees, or
| conflicts of interest - I could probably find more fraud.
| calderarrow wrote:
| I'm very excited to see how technology impacts financial
| reporting in the future. We're rapidly approaching a point
| where every single transaction could be audited in real
| time with software, and the details of each transaction
| automatically scrutinized.
| imagine99 wrote:
| "Excited" is one way of putting it. If we had any chance
| of this working or ending well, we wouldn't get daily or
| weekly posts here on HN of people having their
| Stripe/AWS/PayPal/Google accounts banned. Look forward to
| "Your company has been locked, please contact your
| auditor AI to get no help whatsoever"...
| grogenaut wrote:
| But that's the exact opposite to the economics of
| consulting esp at these big companies. The goal is to get
| as many low cost employees doing the most amount of high
| bill work as possible to make the most profit. Automation
| or ai would just lower what you can charge by removing 1000
| hours per year of a college grad making 50-90k while
| charging at 500k a year for them. And you need these rates
| to cover for the highly paid sales leads and project leads
| as well as profits. You'd have no good way to pay your high
| bill rate applied scientist.
|
| But why does cost not matter on the contract? A few
| reasons, one being is these are hourly contracts and the
| consultants know the customer has to finish the project.
| there will be more money. Second the customers are picking
| one of these companies on rep. If they fire the consultants
| they just rotate through the rest of the big five. There's
| no real incentive for the big five to change their model
| with customers who are making decisions based on who
| sponsors the golfer they like. Just like how every VC used
| svb, go with who you know.
|
| This is why I left consulting. Every good shop gets wooed
| by the siren song of butts in seats economics. After
| consulting I've moved to where I sonetimes have to damage
| control projects from the big 5 and other high end large
| tech consultants on code. They're all doing the same thing
| if they get that big.
|
| We had 2 recently with nationally renowned consultants
| where the provided heads couldn't use basic shell scripts
| or basic cloud cli, all at a senior DevOps bill rate. I
| ended up interviewing several of them and the only one of
| them id trust was their senior principal architect (5%
| time) who I'd put as a Jr/sr sysde/sde at our co. We fired
| the consultants. Luckily we only wasted money, our pm, and
| a few hours of my time.
|
| Beware any company that competes with beer and insurance
| companies for commercial slots.
| Cazafr wrote:
| Ex-IT Auditor and I agree. I was screaming for automation
| in the audit process for years and nobody would listen.
| Many of the employees are burnt-out and hate their jobs. My
| prediction is that governments will decide to audit
| companies using some kind of AI and report back any
| findings to shareholders, while ensuring correct taxes are
| paid. Big 4 has 5 years max to pivot their business or
| they're going to die.
| 7952 wrote:
| I guess ERP companies are better placed to offer this
| kind of thing than an accountancy?
| appleiigs wrote:
| Most of the others replying here are generally saying fraud is
| missed because it's complicated; however, in my opinion, it's
| because the auditors don't know anything else other than "do
| the numbers add up". Once the numbers do add up, they stop
| there.
|
| The vast majority of auditors are only 3 year or less years out
| of school. They don't even know how a corporation is run at
| that point, so how are they supposed to catch anything
| suspicious.
| vrglvrglvrgl wrote:
| [dead]
| mkl95 wrote:
| I wonder how many bn the EU economy would save every year if Big
| Four companies were banned everywhere.
| odiroot wrote:
| Now do McKinsey. Probably would work out even better.
| 0xDEF wrote:
| When GDPR was introduced I was hoping it was technical people who
| would audit software for GDPR compliance.
|
| Instead it is lawyers and accountants working for these big
| auditing companies.
|
| GDPR is good but the absolute insanity of how GDPR is being
| applied cannot be understated.
| Aeolun wrote:
| TBH, I don't understand why anyone would be naive enough to hire
| EY and then actually trust them.
| qwytw wrote:
| Well I bet wirecard did trust them to help them to commit
| fraud.
| smugma wrote:
| As a publicly traded company, you have to hire auditors. If you
| don't like EY you can go to PwC, KPMG or Deloitte, but what's
| the difference?
| Aperocky wrote:
| 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.
| hef19898 wrote:
| 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 four: A prepares the books, B audits
| them. Then C replaces A and D replaces B.
|
| Read up on regulations, it helps!
| allendoerfer wrote:
| The others might be bad, but they are not Enron (EY Germany =
| former Arthur Andersen Germany) and Wirecard bad.
| wouldbecouldbe wrote:
| EY, Mckinsey, Accenture, BCG all of them should be banned.
|
| They were the big proponent of the the just in time management
| principles in the hospitals in the Netherlands.
|
| Then when covid came they were the first the market on twitter &
| linkedin for advice how to improve your health inventory & deal
| with covid challenges.
|
| Serious impact with zero skin in the game. These consultants are
| parasites.
|
| They are mainly used as proxies to make decisions managers dont
| want to be responsible for.
| baxtr wrote:
| [flagged]
| wouldbecouldbe wrote:
| It's not hate, it's accountablity. They are very powerful and
| rich institutions in the Western world that are able to make
| billions, of which a large part tax payers money and have in
| many cases a negative impact.
| baxtr wrote:
| [flagged]
| DANmode wrote:
| I'm reading a displeased comment because of a possible
| connection to one of the listed firms, or a similar one.
|
| Maybe unintended. But that's what I read into it.
| appleiigs wrote:
| I think your comment is worse in nature than OP. Are you
| adding any counter-ideas to the conversation or just
| complaining? And now I'm complaining about your
| complaining.
| baxtr wrote:
| Actually, I have to admit that you're right!
|
| The comment's missing nuance triggered me. Also the word
| parasite. I should haven't replied.
| detuur wrote:
| Seems to me the comment is a concise, if clearly one-sided,
| narrative of misaligned incentives of the consulting industry
| and its particular role in the difficulties that the Dutch
| healthcare providers experienced during the pandemic.
|
| Hardly an appeal to hate.
| looping__lui wrote:
| No. The article this hate comment responded to talked about
| auditing.
|
| McK and BCG do consultancy and don't do auditing.
|
| The one certifies your car is safe on the street and is
| held liable if they didn't inspect properly.
|
| The other is a car tuning operation that doesnt certify
| anything but gives you an edge on the racetrack. Or you
| hope it does.
| hef19898 wrote:
| Well, EY didn't get banned from consulting, but rather
| accounting work. And the latter is crucial, and even legally
| required for all and every public company. The reasons are,
| among others, Enron and , yes, Wirecard. And the fact that EY
| screwed up Wirecard is the reason they got banned.
|
| By the way, it was KPMG that caught the Wirecard fraud. And
| KPMG is in the same league and business as EY.
|
| One of the reasons, IMHO, that Wirecard managed to get away
| with it for so long is, that as a German company, they didn't
| have to switch Accountants and have another accounting firm
| helping them in preparing the books. That would be a SOX set-
| up, and it makes perfect sense. It helps to prevent fraud and
| it protects retail investors, both of which are good things in
| my book.
|
| Strategy consulting, the stuff BCG and McK does, is different.
| As is the outsourcing and consulting Accebture does, which is
| also different from what McK does. The topic so, is EY and
| accounting.
| looping__lui wrote:
| McKinsey and BCG do not audit companies. They are consultancies
| and do not certify accounts to be "correct and legit". Think of
| auditing companies a little bit like of vehicle inspection
| shops certifying your car is safe for the road.
|
| Consultancies are not doing that.
|
| I'm not sure why certain businesses should be "banned" because
| YOU believe they do not add value. Do you pay them? No.
|
| It's not correct that they are proxies for decision making that
| mangers don't want to be responsible for. Neither McK nor BCG
| could run at the scale they do for five decades if that was the
| case.
|
| But I suppose that was just your happy Sunday rant of the day
| to let off some steam.
| 331c8c71 wrote:
| > I'm not sure why certain businesses should be "banned"
| because YOU believe they do not add value. Do you pay them?
| No.
|
| Yes, whenever they are hired by the public sector.
| http://recreation.gov is one example in the US I know about.
| eastbayjake wrote:
| That was Booz Allen Hamilton, they are a government
| subcontractor that largely provides long-term staff
| augmentation... totally different type of professional
| services than strategy consultants or even system
| integrator (SI) shops like Accenture and Deloitte.
| looping__lui wrote:
| So the public sector should not hire private contractors in
| general. State it like that then.
|
| How is a mismanagement of consultants by public sector
| entities a justification to "ban" an entire sector?
| qwytw wrote:
| Well the least they can do is force band auditing
| companies from offering consulting services because that
| is a clear conflict of interest..
| looping__lui wrote:
| That I do agree with.
|
| BCG and McK don't offer auditing.
| 331c8c71 wrote:
| I was objecting to "you don't pay them" specifically.
| looping__lui wrote:
| With governments having like 30-50% GDP share of the
| economy (e.g., tax versus GDP) - we are gonna have a hard
| time banning literally everything based on that...
| wouldbecouldbe wrote:
| We should probably ban the "no skin in the game part"
| instead of just the sector. Even though there have been a
| few court cases, the effect was tiny and they are still
| considered reputable. In some cases probably more
| personal lawsuits should be done more often (also for
| politicians and civil servants)
| epups wrote:
| I don't get it. Do you think auditors and consultants
| that screw up on their job should be prosecuted?
| TulliusCicero wrote:
| Depends on the nature of the screw up and on how high up
| the hierarchy they are.
|
| At a sufficient level of negligence and authority -- yes.
| moremetadata wrote:
| [dead]
| _fat_santa wrote:
| They are "professional scapegoats" IMO, companies pay them to
| take the blame and their business model seems to be: collect
| fees, do an "audit", pay the fine, keep the spread.
| zzzzsleep662 wrote:
| Audit results are taken very seriously by companies operating
| in heavily regulated industries that intend to stay in
| business, so healthcare, finance, insurance etc.
|
| If you are a team lead doing programming for one of these
| sorts of companies and the auditors come round with some
| findings, I promise you that you need to take it deadly
| seriously. I've seen engineers fired for cause by the board
| of directors of a fortune 500 for failing to do so. Word gets
| around and nobody will touch them after that. Its literally
| career ending to poo poo audits.
|
| Tech companies are the odd man out when it comes to audits,
| which is why its possible for so many in a thread like this
| to have opinions that are so wildly inconsistent with
| reality. Who knows how much longer that will last,
| particularly with advances in AI.
| DANmode wrote:
| What does "failing to do so" look like most times, if you
| don't mind me asking?
| zzzzsleep662 wrote:
| No I don't mind.
|
| It means delaying or coming up with excuses for why you
| can't have security concerns remediated within the agreed
| upon time frame. Regardless of the technical challenges
| involved.
|
| Audit remediations are not the kind of projects where
| delays are acceptable. You absolutely must drop
| everything else you've got going on in those situations
| if you even remotely get a hint that the project might be
| behind.
|
| The reason here is that your boss and your bosses' boss
| can't save you. If bad audit results come back you can
| bet the C suite had an emergency meeting discussing how
| to explain them to the board and the timeframe for
| getting them fixed. And you can bet they made some sort
| of commitment.
|
| There are hundreds of millions to billions of dollars on
| the line in insurance premiums and future legal process
| in some cases. Oftentimes cyber insurance will mandate
| some kind of timeframe for remediation upon notification
| of a security issue. So you'll get hit with penalties
| well before the next audit if you delay. You don't want
| to be the programmer(s) that missed a deadline there.
| looping__lui wrote:
| No. This is nonsense.
|
| You audit accounts that are falsified and give thumbs up: you
| close shop, are held liable for damages and could go to
| prison.
|
| Auditing companies are crucially important for a working
| economy. Bank loans, bonds, equity markets would all be chaos
| and fraud mayhem without them.
| phatfish wrote:
| The trouble is, in no way do they act like they are
| "crucially important for a working economy" (which i agree
| with). They abuse their position at every opportunity.
|
| We might as well turn "audits" over to the short sellers
| like Hindenburg Research, at least they make money by
| exposing rotten accounts rather than hiding them.
|
| The fact that being an activist short seller has become a
| business model in the last ~8 years tell you how bad the
| likes of EY are.
| selimthegrim wrote:
| Exactly what good did Moody's do with 2008 and SVB?
| looping__lui wrote:
| Moody, Standard & Poors and Fitch are RATING agencies.
|
| RATING agencies are different from AUDITING companies
| different from CONSULTANCIES.
|
| Rating agencies were somewhat restructured after 2008
| (but are still kind of edgy) - because they did literally
| write AAA on a piece of paper for money. But there
| ratings were opinions and had no real legal meaning.
| uni_rule wrote:
| I was about to say aren't there only 4 auditing agencies
| in the entire US after the fifth fucking imploded after
| the Enron scandal due to their reputation being
| tarnished?
| looping__lui wrote:
| No, there are more. But auditing an S&P500 corporation is
| pretty complex. I am not in the auditing S&P 500
| corporation business and it looks like there may be six -
| but the Big4 literally seem to do 491/497 companies. I'm
| not sure I am too concerned about the auditing quality of
| the Big4 tbh though...
|
| Enron's problem was the "consulting AND auditing" mess
| with conflict of interest if I am not mistaken.
| amrb wrote:
| The big four prop up the business world, status quo.
|
| Say your a large company listed on the stock market, so pick
| from the four big companies because serious companies use them,
| who's the CFO an ex-account from the big four who knows their
| orderand process.
|
| Now if no other companies can enter that bubble, are we really
| surprised at the outcome!?
| Cantinflas wrote:
| Agree about the proxy part for the consultancy business, it
| should be common knowledge and those manager should be fired
| ksec wrote:
| >They are mainly used as proxies to make decisions managers
| dont want to be responsible for.
|
| Interesting I just watched a video [1] on consulting yday. It
| is on something similar happening in the UK. And another video
| ( couldn't find it ) that suggest unless there are some other
| interest for these consultant, ( like outsourcing certain
| function to certain clients ) all they do is to make a case for
| what the management _wanted_ to do anyway, and rubber stamp on
| it. And mostly because management wanted something on their CV
| / resume, so they could move on to another job and repeat the
| same process again.
|
| [1] https://www.youtube.com/watch?v=Aj2od-Jpanw
| epups wrote:
| What is "skin in the game" in this context?
| version_five wrote:
| This article is about auditing, your comments appear to be
| about consulting / advisory businesses.
|
| Otherwise, I mostly agree, though I don't support a ban. It's a
| complex topic - companies are free to waste money how they
| want, and even governments do need real advice. It's just too
| bad they pick such shitty advisors to support decisions they've
| already made instead of actually seeking good advice.
| oxfordmale wrote:
| Yes, companies should be free to waste their money as they
| want. However, auditors serve a purpose and that is to
| identify any fraudulent activities. In the case of Wirecard,
| EY failed at this.
| theK wrote:
| Correct and that is why they should be made accountable for
| this. I'm with gp that this particular ban is a bit harsh
| but nonetheless it is the state determining
| accountabilities and it seems to have been a thorough
| investigation.
|
| OTOH, the monetary penalties where a bit on the light side
| so maybe that also balances out the rather harsh ban.
| vajrabum wrote:
| Advice for money at least at the top level is in the long run
| always going to end up bad advice. The incentives are pretty
| much all about lining up more work for the firm.
| euix wrote:
| My partner works at one of these big four companies and the way
| she puts it - they essentially function as outsourced expertise
| for governments the world over - essentially expert functions
| have been hollowed out of state governments and into the
| private sector and thus there is really no expertise within the
| national government level to handle complex tax and accounting
| situations and they are instead all outsourced to these firms.
|
| We should really consider the present western world as some
| sort of marriage of corporatism and government - they are
| really hand in hand as two sides of the same coin.
| jkukul wrote:
| > there is really no expertise within the national government
| level handle complex tax and accounting situations and they
| are instead all outsourced to these firms.
|
| worth mentioning that the complex tax situations are the
| effect of lobbying of the big four firms in the first place.
| dragonwriter wrote:
| > We should really consider the present western world as some
| sort of marriage of corporatism and government
|
| "Corporatism" is a model of society in which government,
| private industry, union, and other power centers are
| integrated, mutually cooperating, and centrally coordinated.
| A "marriage of corporatism and government" is just
| "corporatism".
|
| (Corporatism is an element of, but not coextensive with,
| fascism.)
| 55555 wrote:
| Yeah but then the experts at the big 4 are 23 year old grads
| with no experience. I don't get it.
| theK wrote:
| Not if you look at Audit (which is what the EY story is
| about). In Audit you have legislature requiring
| accountability structures and typically there will be one
| or more persons in an audit that are personally accountable
| about the attestation. These people in big fours typically
| are some certified auditors in their 30s and also a partner
| at the firm (40s and up)
| dhruval wrote:
| Partners and managers review and sign off, but the people
| designing and doing the actual audit procedures are
| mostly in their 20s.
| theK wrote:
| That is not correct. Audit is very regulated inside big
| auditing companies and the processes and evidence
| requirements are almost always part of an internal
| auditing framework that is designed by very senior staff.
|
| Shure a lot of the leg work is being delegated off to
| juniors but that is not of substance here.
|
| What you talk about might be happening in smaller shops
| but not on tier 1 audits inside the big four, there just
| is too much at stake.
| wil421 wrote:
| I know a few people who went into Audit after Masters in
| Accounting degrees. It was basically a 2 year post grad
| program to excel their careers. None of them wanted to go
| for partner it was just a 2-3 year box to check.
|
| I know much more people on the IT Consulting side who are
| in it for the long haul to partner or whatever. The job
| was also much better than the Audit scene, 80+ hour days
| in a sweaty conference room and next to no days off.
|
| They both had he same MO, send in the 30s\40s flashy
| employees who then delegate all the work to 23 year olds.
| Once the project is in full force they tend to leave and
| another crew comes in who interfaces with the low cost
| offshore teams or 23 year olds.
| theK wrote:
| You do have to delegate work in audit as well as in the
| other professional services disciplines. Nobody will
| contest that. What makes audit stand out though is that
| legislators require and enforce accountabilities (as the
| wirecard story clearly shows).
| whimsicalism wrote:
| I worked in government and they were still obviously
| smarter than the gov workers. Experience is not everything
| and I think that should actually be a major lesson from
| government employment practices.
| ZoomerCretin wrote:
| No lesson will be learned as government employment is
| purposefully handicapped.
| portpecos wrote:
| How can a 23-year-old with four years of college
| experience and one year of corporate experience possess
| more expertise than a government employee who has
| dedicated a decade to working within their specific
| domain?
| free652 wrote:
| The latter just collects the paycheck and could care less
| about anything else, they won't get fired.
| DANmode wrote:
| Lends even more plausible deniability when processes aren't
| followed, or a "mistake" is made (possibly at the behest of
| the client).
| Traubenfuchs wrote:
| Because approaching 30 and being in the senior consultant,
| (junior) manager and director positions ones primary job at
| Deloitte becomes selling / pitching work that those below
| you will do.
|
| I was a Deloitte manager.
| 23B1 wrote:
| 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 a (thin
| slice) of a major strategic program, or find some sub to farm it
| out to at a really low price.
|
| Since going out on my own as a consultant - focused on the same
| sort of growth programs, as opposed to audit - I generally find
| that I can achieve the same outcomes for a client with a handful
| of people on a a reasonable budget.
|
| I left primarily because it's just bonkers how much pork these
| big consultancies manage to get away with packing on, to the
| point where it was a major reputation risk to me.
|
| I'd encourage any CXOs out there seeking to outsource major
| strategic initiatives to consider hiring individuals or smaller
| entrepreneurs with experience inside the bigs, but without the
| downward pressure to get as many butts in seats as possible.
| chinabot wrote:
| Lets face it, the answer from chatGPT would be almost identical
| to what these consultants say, however the main reason for
| consultants is to CYA so if the decision is bad, you can blame
| someone else.
| 23B1 wrote:
| I won't deny that I've been using it as a research assistant
| to investigate a lot market forces and conditions, but as
| always I have to support it with quality data and citations
| if it's gonna play in the board room and with savvy
| institutional investors.
| sizzle wrote:
| Their consultants are probably utilizing ChatGPT now to 10x
| their buzzword bingo outputs
| number6 wrote:
| ChatGPT is not that old. So someone had to do the writing
| unixhero wrote:
| Ex accenture here, left and started my own. M u c h better and
| my clients love that I am not from a big shop. Money is good
| and life is smiling.
| 23B1 wrote:
| Congrats man feel free to reach out if you ever want to
| collaborate. 05-trivet.turner@icloud.com
|
| I'm pure strategy, most of my clients are 'intraprenurial'
| CIOs, CSOs, CFOs.
| benatkin wrote:
| Part of the grift is that roughly one of ten of these unproven
| low-paid MBAs will be exceptional. So when one does a good job
| they'll use it as an example of typical performance. I see this
| happen with dev talent agencies and unproven software
| engineers. Only the great projects go in their portfolio and
| the satisfied clients are happy to appear on their website
| because they don't realize they just got lucky.
|
| With software engineers some of the remaining 90% really are
| talented but spend most of the project learning on the job,
| fixing an issue in a few hours that a senior engineer in their
| stack could fix in 30 minutes with their arcane knowledge.
| Meanwhile the senior engineer goes to the scrums (they love to
| hide behind agile). It's a solid grift.
| 23B1 wrote:
| Yeah I mean I don't blame people for celebrating their
| successes and sexiest projects - I certainly don't include
| all my fails in my portfolio, heh.
|
| What's interesting about this article (and the general state
| of management consulting) is that the cracks are beginning to
| show in these big firms that used to have a "nobody got fired
| for hiring EY" reputation.
| Jolter wrote:
| Interesting, but how does your experience relate to the linked
| story? Is EY somehow related to Accenture? Are Accenture also
| doing auditing?
| 23B1 wrote:
| They're both global professional advisories with a ton of
| similar services and competing for similar clients. They
| ought to be thought of as basically body shops for management
| consulting.
| andrewmutz wrote:
| Does outsourcing major strategic initiatives even work? Seems
| like the definition of the sort of things you shouldn't
| outsource
| [deleted]
| benatkin wrote:
| I think the answer is "it depends".
| 23B1 wrote:
| Well for my clients they're often up against maxed-out
| resources or employees who are just mired in their day-to-day
| and need a sort of entrepreneur-in-residence. For me, I'm
| given one or several major strategic initiatives and then my
| job is to build a 'demonstrator' that hits all of those
| without needing to fully build them out.
|
| My client (typically an executive) can then take the
| presentation to his or her leadership team or board to unlock
| the funding required to stand up the 'execution' phase of
| that initiative internally through hiring.
|
| So I guess you could say I build MVPs or proofs-of-concept
| that, if they work and are desirable to the company, get spun
| out into new lines of business.
| californical wrote:
| This sounds like amazing work, the best part of software
| engineering is coming up with a prototype and
| experimenting. Most of my personal projects are basically
| "I wonder if X is easy or hard, and if I can make it work"
|
| Do you stick to a particular business domain? Eg finance,
| transportation, e-commerce? I'd think it would help you to
| build MVPs if you stayed in a specific domain, but it could
| be fun to move around a bit too :)
|
| Also: how do you find clients? I feel like again this would
| come from having connections in a specific business domain?
| It feels like it should be hard to sell yourself as the
| "prototype person", but how do you convince someone to let
| you prototype for them for a while?
| throwayyy479087 wrote:
| [dead]
| Havoc wrote:
| Headline seems a little overdramatic.
|
| >listed
|
| >new
|
| >in Germany
|
| >two years
|
| ...that's gonna be like one or two clients max. Very bad PR but
| complete non-issue from a biz pov
| [deleted]
| expertentipp wrote:
| Still beter than one-off few million EUR fine... billion worth of
| fraud here, billion worth of fraud there, and pretty soon we'll
| be talking about real consequences.
| morsch wrote:
| (for two years)
___________________________________________________________________
(page generated 2023-04-09 23:00 UTC)