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Comment by cultus | Hacker News Reader

I do not understand how we still allow this obvious conflict of interest with firms hiring their own public auditors.

I'm a bit out of the loop on how this all works but ... who would pay them otherwise?

Like a big pool or something everyone contributes to and then they get randomly assigned someone or something?

Just spitballing, but public companies could pay a small tax in lieu of paying an auditing firm, and the auditing could be done by government-employed accountants who are beholden to the public interest. Of course this would never happen because it would destroy the politically-powerful auditing firms.

We already do this. The expensive auditors exist to wrangle the complex organization of multinationals into a digestible form so that they can be pushed through the compliance processes of the government employed accountants more efficiently.

The auditors are doing by far the bulk of the work, with the government essentially just signing off on it. This has directly lead to scandals such as Enron and possibly Wirecard.

Yes. I don't know what you're expecting under a "small tax" burden. Did you want that tax burden to be 10x? Besides companies are still going to want to buy their own accounting services to avoid the hassle and cost of resubmission, or penalty (if you're going with an early-punitive measure).

If your goal is to increase the power of the accountancy industrial complex I suppose your strategy is a good one.

Interesting, but I would personally like to leave the government out of this (let's not introduce deeper/political conflicts of interests).

What about just standardizing the fees charged for audits and doing a fixed rotation (rotate e.g. once every 4 years) of assignments of auditing companies to clients (companies being audited)?

This way on one hand the conflict of interest by paying megabucks to auditing firms (to get a positive audit outcome) would vanish (as the fees would be fixed), on the other hand a auditing companies would lose the tendency to try to stick to a particular client (by providing positive audit outcome).

Or we could disentangle government from regulator. The market needs rules and enforcement, maybe the government could pay a private regulator to some of that.

The government can at least ideally be replaced/restructured popularly when it gets its hands dirty with conflicts of interest. The redress for private corruption is much less powerful. I don't understand why it's so often taken as a truism that somehow introducing privatization or profit motive will improve a given problem; I would have hoped by now the numerous flaws in that approach would be apparent.

How do I sign up to be an auditing firm?

This is like, how the system works right now...

No it's not. Public firms are audited by public accounting companies such as E&Y.

> public companies could pay a small tax in lieu of paying an auditing firm, and the auditing could be done by government-employed accountants who are beholden to the public interest

Oh man, I am starting an accounting firm if this gets traction.

Not only will the government-employed auditors get paid, but companies wanting to avoid embarrassing findings will pay for pre-audits. Then, when the right administration comes in, the government audits will be outsourced.

Ideally shareholders or investors would. It’s the same reason why the home buyer pays for the home inspection; it’s a conflict of interest for the selling party to pay for their inspection.

Shareholders do pay them. Auditors report to the board, who represent shareholders, not mgmt. In practice though the boards are usually rubber stamps.

It seems like the board no longer represents the shareholders.

I can't read the article (paywall), but in general - you can't. E&Y (and the other audit firms) have very real conflict rules that prevent audit customers from using advisory services and vice versa.

In fact, we went down the road in building out an offer that would have worked with one of the firms and we abandoned it because it was so painful to just determine if they had a conflict and then we would lose the customer if they did.

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