How Public Accounting Firms Are Like the Mafia

Francine McKenna has accounting issues:

There's a popular Sicilian proverb:
Cu è surdu, orbu e taci, campa cent'anni 'mpaci.
"He who is deaf, blind, and silent will live a hundred years in peace."

Enron, WorldCom, HealthSouth, Tyco, Parmalat, Adelphia...You would think enough lessons had been learned. The financial markets are a mess and the capitalist system threatened. The systems in place to anticipate and preempt market risk failed completely. Financial firms leveraged their capital to an unprecedented extent with no checks and balances. Companies took on enormous risks with minimal disclosure to their shareholders.

And the largest global public accounting firms -- KPMG, PricewaterhouseCoopers, Deloitte, and Ernst & Young -- again failed to prevent, warn, or mitigate the desperate financial situation, the national crisis of significant proportions we now find ourselves in.

So accounting firms are like the Mafia because they didn't keep a close enough watch on financial firms? Hardly. McKenna takes the definition of organized crime and bends it to the accounting profession, a clever enough exercise I suppose but one that could be done with, oh, say, the journalism profession as well.

Of course McKenna's argument is silly. But the biggest flaw in her assertion is that if only the accounting profession had been more diligent, this financial disaster could have been avoided. The problem is the accounting profession is very diligent; it's the expectation that a financial audit will catch all of the flaws that are to be found. It won't. Investors still have to take care and take it upon themselves to be diligent.

Blaming the accounting profession won't help matters.