Tag Archives: Internal Audit

The Silence of the Auditors.

In the Good Old Days, when every day was sunny, there were only two TV channels and Bank Managers weren’t anonymous, every Debit used to have a Credit. Unfortunately, in Banking, this is no longer the case…..but is it only the bankers who were to blame for the hugely creative accounting which resulted in the 2008 banking meltdown?

While we’re all busy vilifying bankers for their greed an incompetence, there is still one group of professionals which has managed to remain silent since 2008.

Here is a table (by no means complete) which shows companies and the results of their 2008 Audit Reports.

COMPANY AUDITOR AUDIT DATE AUDIT RESULT AUDIT FEE (Millions)
Abbey National D &T 4.3.2008 Unqualified £2.8
Alliance&Leicester D &T 19.2.2008 Unqualified £0.8
Barclays PwC 7.3.2008 Unqualified £29
Bear Stearns D &T 28.1.2008 Unqualified $23.4
Bradford& Bingley KPMG 12.2.2008 Unqualified £0.6
Citigroup KPMG 22.2.2008 Unqualified $81.7
Dexia PwC/Mazars 28.3.2008 Unqualified €10.12
Fannie Mae D&T 26.3.2008 Unqualified $49.3
Freddie Mac PwC 2.3.2008 Unqualified $73.4
HBOS KPMG 26.2.2008 Unqualified £9.0
ING E&Y 17.3.2008 Unqualified €68
Landsbanki PwC 2.1. 2008 Unqualified ISK259
Lehman Brothers E&Y 28.1.2008 Unqualified $27.8
Lloyds TSB PwC 21.2.2008 Unqualified £13.1
Northern Rock PwC 27.2.2007 Unqualified £1.3
RBS D&T 27.2.2008 Unqualified £17
UBS E&Y 6.3.2008 Unqualified CHF61.7
US Bancorp E&Y 20.2.2008 Unqualified $7.5
Wachovia KPMG 25.2.2008 Unqualified $29.2

An “Unqualified Audit” is also known as a complete audit. That’s an audit that has been performed and researched so thoroughly that the only possible remaining discrepancies stem from information that could not be obtained by the auditor.

An unqualified audit analyses both the internal systems of control, as well as all of the details in the organisation’s books.

Unfortunately, an audit has to rely on the information provided by the company and as there is often a “relationship” between senior bankers and senior auditors, the auditors have always assumed that the information that they are being given by their clients and chums is accurate and honest.

You can see from the table above that in 2008, every audit signed off every bank as “Unqualified”. A QUALIFIED audit would have meant that a “qualified” opinion would have been given. THAT would have outlined the auditor’s reservations concerning the organisation’s financial statements.

However, so complete was the conspiracy and fraudulent reporting by the banks, that experienced Audit Companies just sailed-by the morass of deceit and misreporting.

Note the fees in the right-hand column. They are in MILLIONS………..NOT that fees measured in so many zeros would EVER have any influence on the outcome of an audit!

So the FIRST question is VERY simple: Should the  Bankers AND their Auditors be standing shoulder-to-shoulder in the dock?

The SECOND question is also very straightforward: Shouldn’t the Regulators be working with the Auditors and NOT with the Banks?


BTW, if you’re investing in Equities, do take the time to read J.K Galbraith’s (very short) book entitled “A Short History of  Financial Euphoria”. Hopefully, it will help you to realise exactly where Markets are headed and on the day after the banks have climbed out, you won’t be one of the many unable to sell your investments.