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March 03, 2010


David Albrecht


Really good post. Thoughtful and to the point. I agree whole-heartedly with your minimalist approach.

Dave Albrecht

Independent Accountant

I agree with you. Francine McKenna had a post about Koss a few weeks ago and I made some comments about the post. The Big 87654 and various Sox consultants want to ram Sox audits down the throat of smaller companies. I repeat: they are largely a waste of money.



I know this isn't exactly on topic, but the report on Lehman's bankruptcy appears to focus on an unusual off-balance sheet transaction known as "Repo 105" that took liabilities off the books temporarily. I don't know enough about it to know if it was "valid" under FAS 140, but if it was, might that mean that all the focus on ICOFR is misguided, even at large institutions? After all, ICOFR can't "fix" what the rules say isn't broken.

Ralph Adamo

The problem with the entire auditing process is that external auditors know NOTHING about fraud detection. The auditors are not trained in audit detection, they have no education in fraud detection, they have no work experience in fraud detection, and they would not know a fraud if it was occurring right under their noses. Conseqently, rules, regulations, guidance, enforcement, etc. and all sorts of things which SHOULD help auditors perform audits that involve discovery of frauds that cause material misstatements will not meaningfully address the underlying problem. And that is, auditors are totally incompetent when it comes to fraud. Making auditors take fraud seminars or getting certifications like the "certified fraud examiner" or "certified in financial forensics" won't help them become competent either. One could earn those credentials and still emerge incompetent to detect frauds. And that is because NONE of those programs are designed by practitioners who have actually DISCOVERED financial statement reporting frauds first hand. Those very rare individuals, like me, who actually discover fraudulent financial reporting are NEVER selected to actually create the guidance that auditors would need to follow to detect fraud. And that is because the big accounting firms and the educational organizations that they influence (e.g., ACFE, AICPA), LIKE it that way. They want low-paid, fraud-incompetent employees doing the audits so that the top partners can maximize thier profits. Having qualified forensic accountants with REAL fraud detection experience would add to the expense of the audit and cut into the multi-million annual paychecks of the top partners. It's really as simple as that. The bean counters at the audit firms have even figured out that it's more profitable to get involved in lawsuits over their poor audits than to invest in top quality audit and forensic accounting talent. That is why nothing will change. When the PCAOB really does its job (for the first time) and implements heavy duty FINES for poor audits, then maybe the big accounting firms will wake up and take notice. But I wouldn't hold my breath on that, as the PCAOB has about as competence and integrity as the SEC, which means that they know and care much more about Internet pornography than they do about fraud. So now you know why things are the way they are.

Catherine [rest of author's name deleted by Tom]

Although, Koss is old news, I find your article refreshing at it focuses on detailed aspect of the fraud case. I think that if the auditors are reshuffle every once in awhile, they would easily nip the fraud case at its budding phase. ... [sentence deleted by Tom] ... I think that more transparency internally and externally would benefit not only the stockholders but also the employees because they would never know when they just wake up one day without work. Good article by the way.

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