Are the Big Four accounting firms too big to fail? Ask IFAC’s Bob Bunting

Bunting tackles the hottest topics in talk to students. How would you grade him?

In a speech last week at Loyola Marymount University, Bunting, new head of the International Federation of Accountants (IFAC, in French), told accounting and auditing students they were needed now more than ever.

In addressing the credit bust, he chiefly blamed “corporate governance failures.” And said the solution lies in new global-sized initiatives:

Bunting

What makes all of these problems so much worse, of course, is our global interconnectedness. There’s no such thing as a local meltdown anymore-and shockwaves don’t only emanate from the most powerful nations. Who would have thought, for example, that banking failures in tiny Iceland would be felt in Russia, the UK, and Scandinavia, and that they would put the life savings of thousands of retirees in those countries at risk? This is only one example of how the interconnections that work so well in good times-as we sell, borrow, and do business with entities a continent away-can cause such havoc in bad times.

Suffice it to say that no national system of regulation can protect its citizens unless it is integrated into an equally rigorous international system.

Are the Big Four too big to fail? He said:

Plain and simply, the combination of unlimited audit firm liability in many countries coupled with limited choices of audit firms for the largest international corporations injects additional risk into the financial system. The majority of large global corporations use the Big Four accounting firms for auditing work. If one of the large firms should fail for any reason, and liability is the most likely possibility, the viability of the whole system would be placed in jeopardy. This concentration issue is thus one we must address.

and

Putting the public interest first is a priority for our profession, but we must ensure that there are professional accountants who can carry out this responsibility.

He also covers convergence and auditor rotation, among other hot topics.

Read the whole speech: READ MORE →

What’s your audit committee worried about?

These are the things should be keeping CFOs awake at night.

According to a survey of 150 audit committee members, the top five concerns are:

1. Liquidity, access to capital and cash flow;
2. Risk management;
3. Financial statement issues;
4. Maintaining internal controls; and,
5. Alignment of business goals, incentives, culture, compliance, controls and risk.

The survey also showed:

  • 89 percent said the financial crisis had caused their company’s board or audit committee to change the nature and scope of its oversight.
  • 53 percent said that they are only or not satisfied that their board exercises appropriate skepticism about management’s risk perceptions and assumptions.
  • 50 percent said that they are only somewhat or not engaged in discussing the assumptions that underlie management’s accounting judgments and estimates that might be impacted by the financial crisis.
  • 38 percent said that they are only somewhat or not satisfied that management has timely and accurate financial forecast information about earnings and cash flow.
  • 31 percent of the representatives from those companies that issue earnings guidance said that the audit committee has reconsidered the company’s policies regarding earnings guidance in light of the financial crisis.