Isn’t this a little problem

Richard Brooks is the bloke who gets tax wrong for Private Eye. He now says this about accounting:

The demise of sound accounting became a critical cause of the early 21st-century financial crisis. Auditing limited companies, made mandatory in Britain around a hundred years earlier, was intended as a check on the so-called “principal/agent problem” inherent in the corporate form of business. As Adam Smith once pointed out, “managers of other people’s money” could not be trusted to be as prudent with it as they were with their own.

Audits are for shareholders.

Rather kills Ritchie’s ideas about stakeholders, doesn’t it?

11 comments on “Isn’t this a little problem

  1. Brooks’s article is sensationalist, badly-researched guff. For example:

    “Few graduate employees at the big four arrive with a passion for rooting out financial irregularity and making capitalism safe. They are motivated by good income prospects even for moderate performers, plus maybe a vague interest in the world of business.”

    How does he know? Did he actually talk to a meaningful sample of the input? You might as well say

    “Few trainee financial journalists arrive with a passion for rooting out financial irregularity and making capitalism safe. They are motivated by good income prospects even for moderate performers, plus maybe a vague interest in the world of business.”

  2. MC

    That’s my experience as well from reading a recent copy- seemed to be a load of Corbinites/ Momentum supporters attempting to be funny and coming over like a cancer diagnosis – poor stuff.

  3. “Stakeholder” is a very annoying and weasely word.

    In a business context it encompasses those with a legitimate pecuniary concern in the business to those who want to claim an interest, however spurious, but who aren’t shareholders, employees or suppliers who face significant financial loss if the thing goes “phut”.

    No wonder Capt. Potato likes it.

  4. @TMB

    Is there a name for people involved in a financial relationship with a business? A catch-all for shareholders, bondholders, customers suppliers, employees, partners in joint ventures etc? I think sadly the answer is “stakeholders” is the only word but it’s often used in a significantly diluted sense too, as you say, so it may even encompass the entirety of society. Having a direct financial relationship would be a more specific criterion but I can’t think of a distinct word for it.

  5. Murphy is now claiming that something he”thinks” is now fact. I think he Is a moron.

    Shame the author didn’t do any real research around this point. As a partner in a big 4 firm I can say it simply isn’t true.

    Reply
    Richard Murphy says:
    May 29 2018 at 9:02 am
    But ample of us have done such research

    And we think it is

    Reply

  6. Ample of us? How many is that?
    What are the professional qualifications and published work in peer reviewed journals of such researchers?

  7. Martin: Ample of us? How many is that?

    Still only one – it’s just that the shirt collar is even more uncomfortably tight and raising arms above head is distinctly a thing of the past.

    To borrow from Wodehouse, it’s as though he were poured into his clothes but forgot to say “when”.

  8. The concept of audit has moved on since it was first introduced, and while it still is primarily for shareholders you’d be hard pushed to find a course these days where stakeholders weren’t included, common example being a bank that has covenant to go with loans that certain ratios won’t be exceeded etc.

  9. @ BniC
    Audits were invented primarily for the benefit of creditors; IFRS is for the benefit of shareholders but is only required for listed companies.

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