7 ms·

If a CEO mismanages and goes bankrupt, they cannot start another company for 5 years; a two-year ban seems mild, but better than nothing, as the reputational da

by jll29 4y ago

If a CEO mismanages and goes bankrupt, they cannot start another company for 5 years; a two-year ban seems mild, but better than nothing, as the reputational damage is substantial (why would any non-criminal pick EY afterwards in good faith if there are others?).

helsinkiandrew 4y ago
As well as a €500K fine, five employees were also fined between €23,000 and €300,000. And seven others escaped punishment by handing back their auditor’s licences. I’m not sure many reputable public companies will be queuing up to use their services in 2 years time
- hef19898 4y ago
  If a certified and liscenced auditor in Germany returns his liscence, well, that person just ended their professional career. So the alternativr seems to have been considerable worse. Rightly so, Wirecard was a fuck up of epic proportions.
ck45 4y ago
It would be an interesting idea to make auditors fully accountable like bankruptcy advisors. I know, this is never going to happen.
- angus-prune 4y ago
  The current problem is that the insentives are all wrong. It is the company being audited that gives the auditers the business. Its not in the interests of a dodgy company to appoint a good auditor, and its not actually in the auditors (short term) interest to uncover wrongdoing as it just means they'd lose a client. My proposal is that you require every company to have insurance to cover the risks, making the insurers fully liable for fraud (and any other business risk that audits protect against). Companies then don't appoint their own auditors, but the insurers do. Its in the insurers interest to make sure that any audit is effective as they're on the hook for any liability the audit misses. This way the insentives for the auditors are aligned with the interests of the people relying on the audit (shareholders, customers, suppliers).
  - bradleyjg 4y ago
    There was something like this with bonds pre 2008 but it didn’t work out like you suggest. Rating agencies were, and are, paid by bond issuers are rated a bunch of synthetic real estate backed bonds as very safe. But then on top of that, certain of these bonds were insured—-notably by AIG. However, AIG just rubber stamped the ratings and ended up going bankrupt when the crisis hit. The real mismatch of incentives is one layer deeper than your comment suggests. An insurance company CEO can do very well for himself underpricing insurance. The business grows as premiums roll in and he collects a bunch of bonuses. When the SHTF he could just resign and collect his golden parachute.
    - mjevans 4y ago
      Who audits the auditors? The insurance company also needs it's risks assessed independently.
  - bostik 4y ago
    The Maltese gambling regulator did something like this back in 2016. While the idea is good (and I support the practice in principle), it was a dismal failure in aggregate. Devil's in the details. The regulator pre-negotiated approved rates and vetted a bunch of companies, all of which had to had presence in Malta. The audit reports have to be turned by mid-June, IIRC, and they can't really start until the accounts for the previous year have been finalised. So in practice the audits must take place between late February and mid-May. At the time the entire nation of Malta had about 450k people in total, and each audit blocks two accredited people for approximately three weeks. Turns out there are a lot of gambling companies registered in Malta, and each pair of auditors could only process 5-6 companies within the allotted time. The country would have run out of auditors ... so they licensed a whole lot of local smaller shops as accredited gambling auditors to make up the numbers. Many of whom did not have the technical knowledge to actually even assess, let alone understand the businesses they were assigned to. And I can say this from painful experience: there is real value having the same team of auditors for 2-3 years running. They will get to know how your company operates, and any good ones will figure out entirely new questions to ask you from year to year. By all means, be an adversarial assessor, but at least please be clued in. Disclosure: on the receiving end as a key person in technical audits since 2015.
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shortrounddev 4y ago
Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? I've heard the climate is very hostile to businesses in Germany; my sister in law was trying to sell art on etsy and apparently she had to get a business license to do so in Germany. She's now back in the USA where she can just sell stuff online and the only thing she needs to do is file her taxes correctly
- charlieyu1 4y ago
  You know, all regulations only hurt small sellers, people at the “top” always get away from all the crap they are directly responsible for, no matter they are hurting their own business or the society as a whole
  - Timon3 4y ago
    It's the wrong take-away to say all regulations only hurt small sellers. Do you want to give up regulations on child labor, or worker safety, or foods and drugs? If not, how come, considering it all hurts only small sellers? The problem isn't the concept of regulation, but the follow-through on loopholes. By doing away with regulations you'll decrease quality of life for most people. Instead we have to find ways to react to loopholes in a fair way. It's not impossible, we've done it before, see the previously-mentioned examples!
    - charlieyu1 4y ago
      I don't think small sellers have anything to do with child labour. And since you mentioned loopholes, it is always the big players who get away with loopholes that small business owners do not
      - akiselev 4y ago
        Small sellers aren’t worth even going after until they reach a certain size for huge swaths of the regulatory regime. See, for example, UL/CE and FCC regulations - unless they burn something down or interfere with emergency services, businesses can usually defer the regulatory cost till they can afford it. Or the FAA, which gives out slaps on the wrist like its going out of style, as long as the offender is not an airline. Case in point: many countries allows underage family members to work for family businesses and even the ones that don’t, barely enforce it. A factory hiring dozens of kids? That’s a lot less likely to go unnoticed.
brookst 4y ago
So as a super talented CEO, would you take any jobs trying to save a failing company?

by jll29 4y ago

helsinkiandrew 4y ago

As well as a €500K fine, five employees were also fined between €23,000 and €300,000. And seven others escaped punishment by handing back their auditor’s licences. I’m not sure many reputable public companies will be queuing up to use their services in 2 years time

hef19898 4y ago
If a certified and liscenced auditor in Germany returns his liscence, well, that person just ended their professional career. So the alternativr seems to have been considerable worse. Rightly so, Wirecard was a fuck up of epic proportions.

ck45 4y ago

It would be an interesting idea to make auditors fully accountable like bankruptcy advisors. I know, this is never going to happen.

angus-prune 4y ago
The current problem is that the insentives are all wrong. It is the company being audited that gives the auditers the business. Its not in the interests of a dodgy company to appoint a good auditor, and its not actually in the auditors (short term) interest to uncover wrongdoing as it just means they'd lose a client. My proposal is that you require every company to have insurance to cover the risks, making the insurers fully liable for fraud (and any other business risk that audits protect against). Companies then don't appoint their own auditors, but the insurers do. Its in the insurers interest to make sure that any audit is effective as they're on the hook for any liability the audit misses. This way the insentives for the auditors are aligned with the interests of the people relying on the audit (shareholders, customers, suppliers).
- bradleyjg 4y ago
  There was something like this with bonds pre 2008 but it didn’t work out like you suggest. Rating agencies were, and are, paid by bond issuers are rated a bunch of synthetic real estate backed bonds as very safe. But then on top of that, certain of these bonds were insured—-notably by AIG. However, AIG just rubber stamped the ratings and ended up going bankrupt when the crisis hit. The real mismatch of incentives is one layer deeper than your comment suggests. An insurance company CEO can do very well for himself underpricing insurance. The business grows as premiums roll in and he collects a bunch of bonuses. When the SHTF he could just resign and collect his golden parachute.
  - mjevans 4y ago
    Who audits the auditors? The insurance company also needs it's risks assessed independently.
- bostik 4y ago
  The Maltese gambling regulator did something like this back in 2016. While the idea is good (and I support the practice in principle), it was a dismal failure in aggregate. Devil's in the details. The regulator pre-negotiated approved rates and vetted a bunch of companies, all of which had to had presence in Malta. The audit reports have to be turned by mid-June, IIRC, and they can't really start until the accounts for the previous year have been finalised. So in practice the audits must take place between late February and mid-May. At the time the entire nation of Malta had about 450k people in total, and each audit blocks two accredited people for approximately three weeks. Turns out there are a lot of gambling companies registered in Malta, and each pair of auditors could only process 5-6 companies within the allotted time. The country would have run out of auditors ... so they licensed a whole lot of local smaller shops as accredited gambling auditors to make up the numbers. Many of whom did not have the technical knowledge to actually even assess, let alone understand the businesses they were assigned to. And I can say this from painful experience: there is real value having the same team of auditors for 2-3 years running. They will get to know how your company operates, and any good ones will figure out entirely new questions to ask you from year to year. By all means, be an adversarial assessor, but at least please be clued in. Disclosure: on the receiving end as a key person in technical audits since 2015.
deleted 4y ago
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deleted 4y ago
[deleted]

shortrounddev 4y ago

Really? 5 years? That seems really harsh. Is it all business failures or does it have to be due to mismanagement? I've heard the climate is very hostile to businesses in Germany; my sister in law was trying to sell art on etsy and apparently she had to get a business license to do so in Germany. She's now back in the USA where she can just sell stuff online and the only thing she needs to do is file her taxes correctly

charlieyu1 4y ago
You know, all regulations only hurt small sellers, people at the “top” always get away from all the crap they are directly responsible for, no matter they are hurting their own business or the society as a whole
- Timon3 4y ago
  It's the wrong take-away to say all regulations only hurt small sellers. Do you want to give up regulations on child labor, or worker safety, or foods and drugs? If not, how come, considering it all hurts only small sellers? The problem isn't the concept of regulation, but the follow-through on loopholes. By doing away with regulations you'll decrease quality of life for most people. Instead we have to find ways to react to loopholes in a fair way. It's not impossible, we've done it before, see the previously-mentioned examples!
  - charlieyu1 4y ago
    I don't think small sellers have anything to do with child labour. And since you mentioned loopholes, it is always the big players who get away with loopholes that small business owners do not
    - akiselev 4y ago
      Small sellers aren’t worth even going after until they reach a certain size for huge swaths of the regulatory regime. See, for example, UL/CE and FCC regulations - unless they burn something down or interfere with emergency services, businesses can usually defer the regulatory cost till they can afford it. Or the FAA, which gives out slaps on the wrist like its going out of style, as long as the offender is not an airline. Case in point: many countries allows underage family members to work for family businesses and even the ones that don’t, barely enforce it. A factory hiring dozens of kids? That’s a lot less likely to go unnoticed.

brookst 4y ago

So as a super talented CEO, would you take any jobs trying to save a failing company?