UK forensic accountant Richard Murphy says: “The fundamental question is how accountants got away with changing rules of accountancy, which state they don’t have to assess the valuation of assets underlying the assets on a balance sheet. How did they get away with changing the audit rules?”
I can see two possible statements here.
1) That accountants, when doing an audit, do not trouble themselves to find out whether a Gilt in hte books at £101 is actually, on the Gilts market, valued at £101. If they’re not doing that then indeed, that would be absurd.
2) That auditors should be looking at the Gilts market and deciding whether the market valuation of £101 is indeed a true and fair value. To insist that they should be doing that would also be absurd.
So it becomes, I guess, which is it that Ritchie thinks they ought to be doing and which is it that they actually do.
Given his comments on the Madoff fraud, I have the horrible feeling that he’s trying to insist upon 2). He’s said that those who audited feeder funds to Madoff should have checked to see whether Madoff was a fraud: but that, of course, was the function of the auditors to Madoff, not the auditors to anyone else.