So, the auditors to the big banks were worried, back in financial crisis time, that they might not in fact be going concerns.
And they were right to be so of course. Banking is an inherently frail industry and even more so when bank runs are breaking out. For of course bank runs are what make frational reserve banking fragile.
Now, if an auditor thinks that the company he/she is auditing is not a going concern they\’re supposed to say so. Except, of course, saying that a bank is not a going concern is exactly what precipitates that bank run and thus makes it not a going concern. The simple qualification of the accounts is all that is required to cause the run (or at least possibly this is so).
So, what did our auditors do at this point? They went off to the government and said, in effect, \”well, you know, these banks might not be going concerns. We might have to qualify their acounts. And that, of course, would precipitate the runs. So Mr. Government, whadda\’ ya\’ gonna do about it, eh?\”
To which the response was \”we\’ll make sure they don\’t go bust as a result of bank runs\”.
Phew, right, so they are going concerns then and no qualification to the accounts is necessary, no qualification that would cause the bank runs to occur.
Now, this looks to me like the auditors using their judgement. You know, checking with the Government about support for the banks before they bring the entire financial system crashing down around all our heads sorta\’ thing?
And what does our favourite retired accountant from Wandsworth have to say about this?
But what is becoming increasingly clear is that a society where playing by the rules is the aim is not sustainable. Auditors and tax accountants are meant to exercise their professional judgement. And candidly I don’t think they are. And that is dragging down the whole basis of the corporate edifice with risk to the entire market system, at cost to us all.
Those with a neoliberal bent who argue otherwise threaten us all. The time for a revival of the exercise of sound judgement is now.