Stardate 20020206.0535

(On Screen): The auditing industry has another feather for its cap today, or rather another black eye. Allied Irish Bank revealed that it has been the victim of an elaborate fraud by an employee of its Baltimore branch, who apparently stole $750 million.

London banks immediately suspended foreign-exchange dealings with Allied Irish as the Dublin-headquartered bank struggled to explain how its auditors could miss such a large-scale fraud.

Good question, I must say. Just how did the auditors miss this?

Of course, you're all thinking, "Andersen, right?" Nope. PricewaterhouseCoopers. And this is very bad; because it is going to make investors wonder whether there actually has been a competent audit of any major company by any auditor in recent times. Are all auditors rubber-stamping clowns? And if so, how can any financial report from any company really be trusted? (In this case, if you look at their comment, it becomes clear that all they were hired to do was to rubber-stamp. "It is substantially less in scope than an audit performed in accordance with Auditing Standards and, therefore, provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information.")

This has become a major financial crisis. All financial systems are based to some extent on trust and confidence, and if people lose confidence in stocks the economic consequences could be extremely bad. It is now evident that there needs to be drastic revision of the entire auditing industry and the rules governing how corporate audits are done.