Count down : the past present and uncertain future of the big four accounting firms Front Cover Count Down Copyright Page Contents Preface to the Second Edition Foreword I. Introduction The Past History and Context Where Were the Auditors Where Is Big Audit Today The Visibility of the Big Four The Expected Attitude of the Players To the Insiders Big Audit Is So Yesterday To the Rest of the World Accounting Is So Boring Familiarity Complexity Conceals Big Audit Looks Like Any Other Utility Mind the Gap The Limits of the Utility Metaphor Where Are the Critics Framing the Issues Andersen Enron The Beginning of the End The Diminished Value of Todays Assurance Product The Players in the Matrix Their Interlocking Mutuality of Interests Lessons from Big Audits Early History: The Great Western Railway Mr. Deloittes First Audit Report HP versus Autonomy: How Big Audit Might Survive the Fallout Examples of the Extent of Large Company Audit Concentration United States United Kingdom France Germany Sidebar: Counting the Beans Facts and Figures on Big Audit Notes II. The Present State of Big Audit How Bad Is It What Is Expected What Should the Auditors Do The Big Four Wont Be Here At All The Next Collapse Goes Four to Zero When Reality Bites It Will Bite Hard The Problem of Available Choice The Attitude of the Regulators The Financial Fragility of the Big Four The Tipping Point The Model and Its Assumptions The Grim Reality of the Calculations And the Cause for Optimism The Big Four Accounting Firms Are Down to Critical Mass Said the Financial Times So It Must Be Official Accounting Standards Convergence Nobody Knows Where They Are The Standard Setters Finish the Job In Reality Convergence Doesnt Matter Sidebar: Convergence and Postponements Can Value Be Brought Back to the Auditors Report A Tale of Two Systems The Future May Be Arriving At Least in the United Kingdom Limitations of Liability Pervasive Hostility The Futility of the Entire Effort The Political Dynamics Summarized As for the Legal Environment Legal Systems Compared Class Actions Costs and Contingent Fees Privity Limitations of Liability Joint and Several Liability Contribution Fault Allocation and Proportionate Liability Europes Unsuccessful Attempts to Take the Lead Mandatory Auditor Replacement Rotation or Tender The Usual Themes and the Unexamined Theories When the PCAOB Chairman Revived an Old Idea The Arguments in Favor of Mandatory Rotation Auditor Replacement as a Sanction Could Better Be Case By Case Auditor Rotation Prohibition HR 1564s Bump in the Road to Nowhere How The British Went Their Own Way The Rotation Environment in Europe Notes IV. The Acts and Attitudes of the Players in Big Audit The SEC Settlement with the Big Four A Chinese Puzzle That Missed Some Key Pieces Sarbanes Oxley Itself Its First Ten Years the Years Since and Counting The PCAOB Asked Auditors an Unanswerable Question Do Company Controls Work  Epidemic Levels of Audit Deficiencies IFIAR and the PCAOB Overplay a Hand The ECs 2010 Green Paper The Bureaucrats Add Little Instead of EU Reform Commissioner Barniers Further Efforts Disintegration The Big Four Tell the House of Lords We Dont See That on the Horizon And Then Everyone Went for Tea Deloittes Audit Ban in Saudi Arabia The Potential for Global Effects As for the Views of the Issuers Lobby Audited Financial Statements for the Big Four Should the Cobblers Barefoot Children Have Shoes Consulting A Plausible Exit Strategy In All Material Respects The Auditors Dont Say Non GAAP Metrics What Does Generally Accepted Really Mean Auditor Independence Appearance and Reality No Value No Point The Auditors Real Clients Time to Reassess Lost among the Mixed Messages Whether Independence Has Value Two Cases Suggest Otherwise The EY Ventas Affair In the End Who Really Got Bonked KPMG Herbalifes Stock Price and the Blame Game Limits on Big Audits Ability to Innovate Legal Standards and Public Expectations The Big Fours Unsustainable Liability Exposure Escalated Public Expectations The Firms Responsibility Neither Regulatory Nor Market Solutions Are Viable Sidebar: A Case Study Standard & Poors in the Gunsights Notes III. A Taxonomy of the Non Solutions Preface: The Auditors Missing from the Financial Crisis The Unachievable Magic Bullets Insurance To Save the Auditors Catastrophe Bonds for Auditors An Idea That Refuses to Stay Dead Government Backed Insurance as a Trade Off The Auditors Own Financial Resources Insignificant Protection Government Involvement with Big Audit Could a Government Agency Assign Publicly Financed Audits Audit by Government More Heat in the Kitchen And Less Light If the Banks Were Nationalized Why Not the Auditors Unified Structures Could the Big Four Think Local But Act Global Outside Capital What Money Cant Fix Forensic Audits to Detect Fraud Joint Audits Nobodys Answer Naming the Audit Partners Will a Red A Really Matter Leadership Replacement to Save a Collapsing Firm A Nonstarter A Useful New Auditors Report The Current Initiatives Lack Real Promise The PCAOBs Eventual Game Change Proposal Only Small Change Sidebar: What If A Contra Factual The Future Belongs to Big Data The Challenges Will Be Enormous Introduction: The Speed and Scope of the Changes The Machines Will Audit Faster Smarter and Cheaper Cognitive Technologys Accelerating Learning Rate As for the Large Firms Business Model Meanwhile the Regulators Are Not On Board To Conclude Notes V. The Uncertain Future of the Big Four Introduction What Could Be the Future Medical Checkups and Annual Audits If Your Doctor Reported Like Your Auditor What Should Be in the Auditors Report Would Users Know When They Saw It The Value of Todays Audit Report Military Historys Metaphor for Expensive Obsolete and Irrelevant And What a Truly Useful Report Might Say Delivering a Tailored Report Roguery at UBS Provides a Teaching Moment The Attributes of a Differentiated Assurance Report Recapping the Prescription A Dose of Real Medicine Audit Quality and Failure Study A Modest Proposal Examples in Other Sectors A Vacuum of Opportunity Structure and Operations Benefits and Support Federal Charters for Accounting Firms and Their Personnel A Blank Page Approach Notes Conclusion Appendices Appendix A Appendix B Report of Ernst & Young LLP Independent Registered Public Accounting Firm Timeline: An Abbreviated History the Origins of the Big Eight and How They Shrank to Four Glossary Abbreviations Acronyms and Cast of Central Characters AICPA CAQ EU FASB FRC FSA FCA PRA IAASB IASB ICAEW IFIAR IFRS PCAOB Sarbanes Oxley SEC Note on Sources Thanks and Acknowledgments About the Author Index Enron killed Arthur Andersen in 2002 leaving only Deloitte EY KPMG and PwC. Now the Big Four with a total revenue of 127 billion face major threats that need immediate attention. Count Down looks at todays model and proposes a new Big Audit fit to serve the capital markets of the 21st century.