Francine McKenna is an investigative reporter who focuses her writings on the auditing profession. She blogs at re: The Auditors, and also writes for financial publications such as Forbes, The Financial Times, American Banker, and more.
In February, Ms. McKenna wrote about the auditors of AgFeed, a Chinese company involved in an elaborate accounting fraud. In March 2014, the Securities and Exchange Commission charged the company and its top executives with fraud:
With the bulk of its hog production operations in China, the executives used a variety of methods to inflate revenue from 2008 to mid-2011, including fake invoices for the sale of feed and purported sales of hogs that didn’t really exist. They later tried to cover up their actions by saying the fake hogs died. Because fatter hogs bring higher market prices, they also inflated the weights of actual hogs sold and correspondingly inflated the sales revenues for those hogs. Continue reading
Francine McKenna at re: The Auditors has an interesting post and set of comments about internal audit functions at public companies and the importance of internal auditors.
External auditors look at a company’s financial statements and a small amount of underlying transactions in order to issue a report that the financial statements are properly presented. (It’s really a check of math and application of accounting rules.) The financial statement audits aren’t designed to detect fraud, and so they almost never do.
In contrast, the internal audit function is engaged in ongoing audits of the financial reporting process and other numbers-related projects. The scope of internal audit work varies greatly from company to company. Continue reading
My friend Francine McKenna wrote yesterday on her blog, re:The Auditors, about what Sarbanes-Oxley has accomplished:
My contention is that Sarbanes-Oxley has at least raised the tone and tenor of the conversation about internal controls and about common sense, tried and true, reasonable practices for financial reporting to shareholders and other stakeholders. Sarbanes-Oxley has raised the expectations, to an appropriately high level, of corporate governance and ethical, non- self-serving behavior of corporate executives. Sarbanes-Oxley has given stakeholders the tools to bring the hammer down on irresponsible, non-responsive, fat headed, cigar chomping, belligerent, insular, seemingly untouchable “big swinging sticks.” The Tone at the Top as improved in most major corporations and their professional advisors, if not by design then by default – the fear of prosecution. Continue reading
Auditors and consultants around the country would like to string me up for my vocal dislike of Sarbanes-Oxley. I frequently moan that the cost is too high, the results are too poor, and consumers are fooled into thinking there’s been a solution to the fraud problem when there hasn’t.
But Sarbanes-Oxley consulting is a billion-dollar industry.A 2003 study indicated that the total annual cost of complying with Section 404 of Sarbanes Oxley was over $1 billion. An average company spent $1.7 million on SOX compliance last year.
Auditors and consultants aren’t stupid. That’s a cash cow for them, and they don’t want to lose it. Continue reading
Ever since my days as a staff auditor at Arthur Andersen, I’ve wondered what it costs to become a partner at a large firm. It’s obviously not something that is widely discussed with staff, so the youngsters all remain clueless.
But Francine McKenna of re: The Auditors has finally answered my question. She points to a report by the Center for Audit Quality. The report says that the average capital contribution per partner is $418,365, which is no small sum for an individual to pay. Continue reading
Francine McKenna over at re: The Auditors has a nice piece about Dan Stulac, a former Arthur Andersen partner who was in charge of the Peregrine Systems audit. Dan used the “I was duped” defense in his criminal case (charges of conspiracy, securities fraud, and wire fraud).
The charges against him were dismissed by a judge. Will someone like this ever get a job again? After all, his defense attorney apparently spent quite a bit of time proving that he doesn’t know much. Continue reading