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Evan Davis on... accountants

Updated Friday, 20th November 2009

Balancing the books and warning investors of potential trouble is a difficult business; Evan Davis from The Bottom Line gives us his view on accountants.

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Evan Davis

Accountants have become more rigorous in their job in recent years.  They're fed up of waking up and seeing companies that they audited, signed off the accounts, said were okay, going bust.  They're fed up too of being sued by cross investors who invested in those kinds of companies.  So they’ve taken their job more seriously, they apply the rules more rigorously, and everybody agrees that it’s harder to massage the books than it used to be, harder to use creativity in accounts as they say.  Now you may say that’s a very good thing, accountants write many more warnings into the accounts, they apply more caveat to the accounts they sign off, and you may say good, investors get more warnings about what the potential vulnerabilities of a business are.

Yes, but also no.  You see one cost to this kind of compliance, this kind of exercise is that if you write more warnings and more caveats into company accounts, it’s harder for the investor reading the accounts to know which ones to take seriously.  How does the reader of the accounts know to distinguish the box ticking or warning that’s simply there so the accountant doesn’t get sued for missing something from the real warning of a vulnerability that is truly going to affect the firm?

Now that is generally a cost that comes into excessive compliance, and attempt to cover backs rather than genuinely warn.  It comes up in health and safety and other areas as well.  But it makes one realise that although extra rigour in a job can be a good thing, it also has a downside: there has to be a balance that too many warnings don’t make extra safety. 

That’s my opinion; you can join the debate with the Open University.

(1’43”)

 

 

 

 

 

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