September 8th 2018


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COVER STORY Caution with gender transitioning: children's futures at risk

EDITORIAL Turnbull the architect of his own demise

CANBERRA OBSERVED Coal-Hand ScoMo pulls off an accidental coup

ENERGY Daniel Andrews' sun worship turns delusional

MEDICINE AND POLITICS Sacrificial Virgins: Is Gardasil even necessary?

FOREIGN AFFAIRS Turkey-U.S. dispute further destabilises Middle East

GLOBAL BAILOUT Follow those zeroes! U.S. Federal Reserve doled out $US29 trillion to save the world

POLITICS AND SOCIETY Business next to fall to 'progress'

OPINION The Victorian ALP observed from up close

SPECIAL BOOK REVIEW Assault on Kokoda Track heroes fails evidence test

BOOK LAUNCH Live not by lies. An appraisal of Patrick J. Byrne's new book, Transgender: One Shade of Grey

CINEMA In praise of horror: That most visceral of genres

MUSIC Aretha Franklin: A singer of spiritual intensity

BOOK REVIEW A self-defeating experiment?

BOOK REVIEW The four firms that rule the world

LETTERS

EDITORIAL Power companies in clover after closures

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BOOK REVIEW
The four firms that rule the world




News Weekly, September 8, 2018

BEAN COUNTERS: The Triumph of the Accountants and How They Broke Capitalism

by Richard Brooks

Atlantic Books, London
Paperback: 336 pages
Price: AUD$32.99

Reviewed by Colin Teese

Richard Brooks has given us a thorough account of how the accounting profession developed into what it has become and why.

Brooks reminds us that the accounting profession grew out of the idea of double-entry bookkeeping. With double-entry bookkeeping, invented by a Renaissance monk, came wealth and a new scientific view. Capitalism could not have emerged without it.

Double-entry bookkeeping, now the basis of modern business accounting, enabled businesses accurately to record all transactions of a business in an orderly way from which could be derived a reliable assessment of whether and to what degree a business was profitable.

The thrust of Brooks’ book is to take us past what he calls the “genius of double-entry bookkeeping” in order to remind us that the enhanced understanding of a business’s results that it provides can also be used to distort and disguise. He quotes one 19th-century critic as saying that the method was “capable of being converted into a cloak for the vilest statements that designing ingenuity can fabricate”.

Brooks goes on to say that at least in the United States by the turn of the 20th century the elite of the profession was less interested in ensuring that business was properly accounted for than in drawing a veil over abuses. In the case of one U.S. company, Enron, double-entry bookkeeping enabled accountants to conjure up false profits and spirit away losses – the ultimate accounting tricks.

And Enron was not the only one.

Brooks point is that the accounting profession should be the watchdog of capitalism. Instead, it has been, in important measure, the enabling instrument of obfuscation and deceit. He describes how the “Big Four” companies have managed to capture most of the world accounting business and at the same time heavily influence how governments approach regulation of the industry.

The Big Four are Deloitte, PricewaterhouseCoopers (PWC), Ernst & Young and KPMG. They audit 97 per cent of U.S. public companies, all the UK’s top 100 corporations and 80 per cent of Japanese listed companies. Effectively they enjoy cartel status. And, because audits are almost universally required, they have what amounts to a state guarantee.

Modern bean counters are able, simultaneously, to provide customers with accounting services and to audit their books. Governments conveniently overlook the obvious conflict of interest in this arrangement. How can it be responsible to have the same firm manage a set of accounts and certify their accuracy?

Worse still, the same bean counters now offer consulting services to the companies; indeed consulting has become a bigger earner for the bean counters, the door to which was opened by the provision of accounting and auditing services.

All manner of scandals and malpractice arising from the privileged position of accounting firms have persisted alongside the lightest touch in regulation. Is it any wonder that the bean counters played their part in the disaster that became the global financial crisis?

What then, can be done?

Richard Brooks believes that accounting firms should not be able to provide consultancy services and be accountants and auditors as well. He believes further that auditing should be separated from accounting.

Even that may not be enough. The idea that auditing should be a “for profit” function paid for by the firm being audited is inviting trouble.

Some say the answer is to make auditing of accounts optional. Under this arrangement, companies could take out insurance to cover losses from bad auditing and premiums could help raise the standard of auditing. Alternatively, and probably better, would be to make auditing a public utility mandatorily imposed on companies as a condition of enjoying limited liability status.

Much tighter rules should be enacted to specify standards of behaviour, with heavy penalties for non-compliance. Specifically, accounting firms should not operate, as they do now, with the privilege of limited liability. Finally, governments should deal with the fact that the industry is dominated by four firms that are able to operate in cartel fashion.

No doubt Richard Brooks well understands that getting any of these changes, necessary as they are, will not be easy. The influence bean counters exercise over governments in all the major capitalist economies will be difficult to overcome.

Whatever the difficulties, we must hope that, in the interests of future financial stability, he and others will be pressing for meaningful change.


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