A recent report on Lehman brothers, by Marian Wang, reported in ProPublica (http://www.propublica.org)/ states:
"A post-mortem report on Lehman Brothers revealed a shady accounting maneuver through which the bank hid its financial troubles for nearly a decade. We take a closer look at the parties pleading ignorance and the auditors who admit they knew, but insist they did no wrong."
The central issue in the financial mess, in which we are enmeshed is the role of accounting firms. I believe strongly that we need to blow up our nation's auditing system and invent a new one. The primary problem currently is the potential for corruption and obvious conflicts of interest on the part of the audit firms who are hired and paid very large sums of money by the firms they are auditing.
We need a new system:
1. The Federal government would create a new agency operating out of the Treasury Department or the Commerce department (it doesn't matter where).
2. That agency would enter into 3-5 year contracts with auditing firms to provide auditing services to publically traded companies.
3. The companies would pay into a public fund, the fees needed to finance the audits. The amounts to be paid in would be related to the size and complexity of the work to be performed to complete the audits.
4. The companies would have no say in which firms are to complete their audits. Companies could file complaints with the Federal agency in the event of disputes about the audits.
5. The auditors would be changed every 3-5 years (much as we change embassy staffs abroad to prevent staff from being "captured."
6. The reports would be delivered to the company boards of directors, and the federal agency. All audit reports would be public documents.
7. This new system would cover all publically traded entities.
Unless and until we separate the auditors from their corporate sponsors, we will continue to have debacles like the Lehman Brothers. We know the bankers and investment brokers are crooks, but too few knew their auditors were complicit--partners in crime so to speak.