This is strange – but anyone that thinks that markets necessarily get the right outcome is just plain wrong.
There is consensus amongst my readers that the big 4 accounting firms have little to recommend them. They are bureaucratic, expensive, not particularly responsive to small customers and not particularly competent. Frauds get through them rather frequently so they should not even give comfort.
There is a strong view (not a majority – but too strong to be ignored) that they are better for marketing purposes, and a view held by some that using a big 4 firm lowers my litigation risk.
The case for using a big 4 firm comes down to the view that they are well known and appealing to clients but my competent one-state audit firm is not well known and is hence unappealing...
Now if Bronte Capital made its investment decisions this way we would soon be out of business. Don’t worry about buying the best investment we can – buy the one that looks best to clients!
But seriously the big 4 firms have a lot to answer for. Three of them audited Madoff feeder funds and PWC has Satyam to add to its (long) list of distinctions. They have between them audited all the big financials that got us into this mess – and yet – strangely – the mess that the audit world is in now is making the marketing value of a big 4 name even stronger.
This is really peculiar. The firms that led us into this mess are the beneficiaries (at least at the moment) of the mess that they created. This is the accounting firm equivalent of a CEO who blew up a company getting a $50 million severance.
Next we are going to hear how important rating agencies are now that debt is defaulting. Moody’s stock will go to infinity!
We are going to discuss this with our foundation clients – but the likely outcome is that we will chose the best firm rather than the name firm. Treat this as “just another investment decision”. [The foundation clients have a big say – and if they wish to go the other-way that is reluctantly what we will do.]
Future potential clients will just have to learn to live with that.