The article written by Cris Shore gives a comparison of audit failure
and corruption and how it relates to Mediterranean Patron-client
relations. First, Patron-clientelism and corruption "were traditionally
viewed as problems endemic to underdeveloped marginal countries
with weak states, powerful self-serving elites, and widespread civil
disengagement." It could also be described as "an informal contractual
relationship between persons of unequal status and power, which
impose a reciprocal obligation of a different kind on each of the
parties." An example of these types of relationships would be
"entitled villagers, peasants, shepherds, and other lower status or
subordinate groups giving service and political support to their higher
status patrons; which included the likes of local mayors, landlords,
priests, merchants, doctors and other members of the local elite, in
return for small favors, political protection, and support in dealings
with the world beyond their local community." c
Areas of corruption and audit failure are evident in the evolution of
the Big Four. Before the Four, eight accounting firms had risen to
global prominence, referred to as the Big Eight. These included the
likes of Arthur Anderson, Arthur Young & Co, Coopers and Lybrand,
Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Michell,
Price Waterhouse, and Touche Ross. With scandals such as Enron and
WorldCom, prominent accounting firms were reduced to four. After
the 2008 global financial crisis, these institutions effectively
increased their hold over international accounting, tax preparation,
bookkeeping, and payroll services. Over 80% of all public companies
in Japan and 97% of all US public companies were audited within
these entities. These establishments were also ethically organized and
dedicated to transparency and honesty; they were viewed as
"watchdogs for the corporate world." Unbeknown to the general
public, "they have been key players in establishing the post-1970s
hegemony and major beneficiaries of the financial financialization of
the economy; they have also become adept at bending the rules to
advance their economic interests." They established a new business
model designed to make them more flexible and responsive to their
global clients in the financial market. They became more prone to risk-
taking and fraud."
An example of this would be "one part of the company may audit a
company's books while another part advises the same client on
strategies to avoid tax liabilities... In essence, creating conflicts of
interest." Price Waterhouse Cooper in 2014 was fined $25 million
and "banned for two years for consulting work to settle allegations
that it had watered down an anti-money laundering report for the
Bank of Tokyo-Mitsubishi; in 2013, Deloitte agreed to a one-year
suspension to consulting for New York regulated banks and paid $10
million to settle allegations that the firm mishandled its anti-money
laundering works for our Standard Chartered."
The Mediterranean patron-client relationship parallels the actions of
these significant accounting firms in that both "became entangled in
collusive relations and corruption of their own." During turbulent
years in rural Italy, wealthy landlords delegated power to local
forepersons and armed bodyguards to protect their estates and to
guard against thieves and bandits. These groups, later referred to as
the Mafia, use their position of power to extort money from the
parties they were charged to protect. They also began to conspire
with local criminals. c
Undoubtedly policies of deregulation, outsourcing, a marketization
have profoundly contributed to the contemporary corruption of
financial institutions. Despite the growth of audit culture, corruption
and fraud appeared to increase, undermining states' regulatory role
and producing new opportunities for the predatory interests of
financial capital. Government regulators are reluctant to indict any of
the Big Four for criminal actions for fear that another collapse would
result in further concentration of power and what would be the
remaining "Big Three." The argument that these firms are "too big to
fail" and "too concentrated to indict" exacerbates moral hazard
behavior and gives the Big Four a curious kind of legal immunity. As
with the Mediterranean patron-clientelism and corruption, the rise in
accountancy scandals reflects a new political economy of crime that
involves significant financial industry actors- including banks, credit
rating agencies, and auditing firms- colluding with government
officials and political elites. In both examples, an "unhealthy close
relationship" Between influential motive-driven individuals and the
government Is developing into its class power.
After reading this article, I thought the current climb in the accounting
field was in serious need of review and overhaul. The standards,
requirements, and regulations their auditors demand of entities they
service should also be required of themselves. With the advancement
of technology and global expansion where accounting rules vary, I
agree with the author that financial institutions, accounting firms, and
big businesses can and do as they please Until their ultimate
implosion. And at that point, even with fines and potential prison
sentences, the prominent individuals affected and harmed are
members of the general public who trust them to provide accurate
and reliable financial information. As we have seen in cases of
significant fraud, many shareholders and investors have completely
lost everything due to greed and corruption. And sadly, these trends
have not seemed to slow down; on the contrary; they are on the rise.
Members of the auditing world that uphold their independence and
integrity have to play catch up and frequently are too late to prevent
such atrocities, but they do their best to prevent them from
continuing. Combating fraud is an uphill battle that is continuing to
evolve.
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References
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance
Services: A Systematic Approach 11th Edition. McGraw Hill
Education.
Shore, C. (2021). Audit failure and corporate corruption: Why
Mediterranean patron-client relations are relevant for understanding
the work of international accountancy firms. Focaal, 90, 91–105.
https://doi-org.ezproxy.snhu.edu/10.3167/fcl.2020.072004
