Arthur Andersen reprise

So, the demise of auditor Arthur Andersen almost 10 years ago, amid the Enron scandal, has not taught the audit profession anything. Thanks to the 2200 page report by bankruptcy examiner Anton Valukas, we now have a definitive account of the accounting tricks the led up to the collapse of Lehman Brothers in 2008. Lehman's collapse led, in turn, to the general collapse of the world's financial system.

The Anglo connection in this mess is quite clear. No law company in the US would certify the off-books financial manipulation employed by Lehman. Lehman then turned to its London based office to find a compliant lawyer in the "light touch" regulatory environment created by New Labour. Linklaters was the London law firm that provided the legal certification for the off-books transactions. Ernst and Young then relied on this legal opinion in auditing Lehman's books. In the process Ernst earned $100 million in fees over the four year period heading up to Lehman's collapse.

The role of Lehman's board of directors in this mess provides an interesting facet into the working of corporate America. The directors have a duty of care in overseeing the financial affairs of any corporation ( see Chapter 7 in Sabotaging America). However, the crucial point here is that the duty of care is to the corporation and not to the shareholders, who actually own the company.

The net result of this artificiality is that we have a self interested accountant providing advice to a mythical person (the US corporation), which is accountable to no one but itself. It is a world of cynical liars who have yet to be brought to justice for the evil they have wrought. I expect they never will be.

My next blog will give some good UK news about how things should be - but America is not interested.