Wednesday, September 30, 2009

Auditors for Hire

Capitalism, the above-board kind, is is deep trouble if we cannot rely on certain fundamental institutions that make markets function. Among the most important such institutions are the accounting firms that audit company books to certify that they provide fair and accurate information.

We rely on auditors to tell us companies are not lying in their financial statements. Once the integrity of the largest auditors is in doubt, we are in trouble. Read this about Ernst & Young.

Unfortunately this story is yet another confirmation that all is not well in our market system. AIG books were cooked and the auditors gave them a pass. Before that, a number of famous bankruptcies in the US including Enron were also falsely certified by auditors.

You already knew about the bond rating agencies such as Moody's and S&P that gave misleading high ratings on bonds of companies that didn't deserve them.

It is disgusting but troubling. Business ethics is at a disturbing low in economies such as the US that used to set standards for the rest of the world to follow.

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