A few links and comments of interest to auditors: continued investigations of TBTF banks, get an engagement letter, and more on The Economist article:
12/9 – Guardian – Standard Chartered under pressure as US regulators relaunch investigation – The 2 year deferred prosecution agreement has been extended another 3 years. DoJ and NY county DA are looking at whether the money laundering for Iran continued beyond 2007, the time when it presumably ended and the violations generating the DPA.
12/1 Journal of Accountancy – Buckle Up: The Importance of Engagement Letters – Reminder to make sure you have engagement letters in place. You put on a seat belt every time you drive, just in case. Get an engagement letter for every engagement, just in case.
Unsettling hint in the article is that firms can get started by implementing engagement letters on audits, reviews, and comps. Since engagement letters are required there, it worries me that a risk manager from CNA needs to drop that hint.
12/16 – Re:Balance – Around the Media – “The Economist” Gets A Good Deal Right – Jim Peterson comments on the article, mentioned earlier, in which he is quoted. He takes an exception to two ideas. First, that the government could in any possible way assign auditors to each public company. Second, the idea of fraud risk insurance has so many flaws that it isn’t as serious idea. Sounds nice, but insurability and scale are issues.
Here’s a casual description of the problem with insuring a company’s financials.
It is easy to share the risk of me causing a hundred grand of damages in a car accident or the risk of my house burning down. Aggregate the risk from a hundred thousand customers, calculate the houses that will likely burn down, divide by number of customers, add administrative & sales costs, and we are good to go.
How do you share risk amongst a small number of insured for a potential risk that is not predictable with a possible payout in the multi-billion dollar range?