4 ms·

It seems like the relatively simple solution here would be to nationalize these firms, or at least their auditing aspect. A public company could handle that and

by neaden 8y ago

It seems like the relatively simple solution here would be to nationalize these firms, or at least their auditing aspect. A public company could handle that and remain more independent and less susceptible to greed than the big four. Have any countries tried doing this?

tialaramex 8y ago
I believe that the appropriate model is the one chosen for the Paris MOU and copycat Port State Control authorities. * Ports can't afford to inspect every vessel that enters * Inspections are annoying and costly for owners even if their vessel passes * But, left to their own devices the Flag States may skimp on inspections, causing a Race to the Bottom where ships registered with Flags of Convenience are mostly awful and the port states end up absorbing the cost (atrocious labour conditions, deaths and injuries, pollution) So the Paris MOU randomly inspects ships, but it has an intelligent and adaptive model controlling the probability of any particular ship being inspected when it arrives in a port. If (say) Panamanian flagged vessels all keep passing their Paris MOU inspections, the rate at which vessels with a Panamanian flag are inspected falls. On the other hand if, say, Venezuelan flagged vessels keep failing inspection, rates of inspection for that flag go up. This encourages owners interested in an "Open registry" (Flag of convenience) to pick one that's doing a good enough job at inspecting vessels to attract the lowest rate of Paris MOU inspections. Which in turn pressures the flag states to either do good quality inspections of their own, or get out of the "Open registry" game instead, either of which suits the Paris MOU signatories just fine. So, governments should have their own small number of specialist auditors, and they should randomly re-audit some fraction of public companies, with the chance depending on which Audit firm that company hired and how many re-audits of other firms audited by that company found problems. The cost of doing all this would be paid by the audit firms, as both a fixed levy AND fines whenever something is wrong.
- kochthesecond 8y ago
  Thank you, that sounds like a pretty good idea. Also realized, this is a bit analogous to how Bitcoin works. In Bitcoin _every_ other node in the network will validate (audit) some proposed work. If at least 51% of the nodes in the network agree that some piece of work is valid, it has a good chance of becoming part of the permanent history (next block on the chain).
- prteja11 8y ago
  That is exactly what a PCAOB does except it is private. The Public Company Accounting Oversight Board is a private-sector, nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.
xkcd-sucks 8y ago
Yeah, to this naive outsider it seems like: - Auditing is for compliance with state regulations, so the state should do it. - With fines as a revenue source, it should be in the state's interest to catch mistakes and fines could/should be set to fund the state auditing apparatus - any private organization paid by the auditee is necessarily in a conflict of interest
- ams6110 8y ago
  With fines as a revenue source it's also in the state's interest to find violations that may not exist. You can't assume that just because it's the government that it's on the up-and-up. People are corruptible, regardless of who their employer is.

by neaden 8y ago

tialaramex 8y ago

I believe that the appropriate model is the one chosen for the Paris MOU and copycat Port State Control authorities. * Ports can't afford to inspect every vessel that enters * Inspections are annoying and costly for owners even if their vessel passes * But, left to their own devices the Flag States may skimp on inspections, causing a Race to the Bottom where ships registered with Flags of Convenience are mostly awful and the port states end up absorbing the cost (atrocious labour conditions, deaths and injuries, pollution) So the Paris MOU randomly inspects ships, but it has an intelligent and adaptive model controlling the probability of any particular ship being inspected when it arrives in a port. If (say) Panamanian flagged vessels all keep passing their Paris MOU inspections, the rate at which vessels with a Panamanian flag are inspected falls. On the other hand if, say, Venezuelan flagged vessels keep failing inspection, rates of inspection for that flag go up. This encourages owners interested in an "Open registry" (Flag of convenience) to pick one that's doing a good enough job at inspecting vessels to attract the lowest rate of Paris MOU inspections. Which in turn pressures the flag states to either do good quality inspections of their own, or get out of the "Open registry" game instead, either of which suits the Paris MOU signatories just fine. So, governments should have their own small number of specialist auditors, and they should randomly re-audit some fraction of public companies, with the chance depending on which Audit firm that company hired and how many re-audits of other firms audited by that company found problems. The cost of doing all this would be paid by the audit firms, as both a fixed levy AND fines whenever something is wrong.

kochthesecond 8y ago
Thank you, that sounds like a pretty good idea. Also realized, this is a bit analogous to how Bitcoin works. In Bitcoin _every_ other node in the network will validate (audit) some proposed work. If at least 51% of the nodes in the network agree that some piece of work is valid, it has a good chance of becoming part of the permanent history (next block on the chain).
prteja11 8y ago
That is exactly what a PCAOB does except it is private. The Public Company Accounting Oversight Board is a private-sector, nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.

xkcd-sucks 8y ago

Yeah, to this naive outsider it seems like: - Auditing is for compliance with state regulations, so the state should do it. - With fines as a revenue source, it should be in the state's interest to catch mistakes and fines could/should be set to fund the state auditing apparatus - any private organization paid by the auditee is necessarily in a conflict of interest

ams6110 8y ago
With fines as a revenue source it's also in the state's interest to find violations that may not exist. You can't assume that just because it's the government that it's on the up-and-up. People are corruptible, regardless of who their employer is.