London Capital and Finance

bail-in wrote: »

How is it that audited companies can suddenly collapse "without warning" as some do?

Because an auditor's job is to make sure the numbers in column A add up to the same as the numbers in column B.

If the numbers in column A have been falsified, and the numbers in column B have also been falsified, and the directors or other perpetrators have been clever enough to ensure they still add up to each other, the auditors will sign off the accounts will a clean bill of health. Then eventually the company will collapse when it runs out of money.

Good accountants will take umbrage at this point and say that their job involves much more scrutiny than that and they spend hours checking the figures and making sure that they reflect reality. It does not matter, as is evident from the collapse of numerous companies which had clean bills of health from the auditor (Patisserie McValerie being the most prominent recent example).

Most accountants are rubbish, just as most financial advisers are rubbish, most musicians are rubbish, and most people and things are rubbish, as per Sturgeon's Law. Dodgy companies have no need to hire the best accountants, there are plenty of bad ones who will check that column A adds up to column B and then knock off early to spend the afternoon in the pub with the directors.

The irony of auditing is that the only companies who would hire a really good auditor at the top of their profession are those in least need of their services. Only very scrupulous and ethical directors would hire a top-class auditor known for asking tricky questions and pulling at threads until they get to the bottom. And it would be highly unlikely that a business run by such directors had anything wrong with it.

(This irony exists in most professions - people who are most in need of financial advice don't hire the best IFAs (too broke), people who are most in need of fitness training don't hire the best personal trainers (too lazy), etc etc. Value operates in the opposite way to magnetism - good attracts good and bad attracts bad.)

Note that I was addressing bail-in's question in general terms. This has nothing to do with London Capital & Finance, which as at the last accounting date was audited by the highly skilled folks at Ernst & Young (known for their good work with Equitable Life, Lehman Brothers, etc etc). I say "as at the last accounting date" because they've changed their auditor every single year since 2015 (when an obscure company called Sales Aid Finance (England) Ltd changed its name and became the London Capital & Finance that we know and love today). Regular rotation of auditors is a perfectly sound practice which helps ensure the auditors don't get too cosy with the directors, and many commentators have said that this should actually happen more often.

Malthusian wrote: »

Note that I was addressing bail-in's question in general terms. This has nothing to do with London Capital & Finance, which as at the last accounting date was audited by the highly skilled folks at Ernst & Young (known for their good work with Equitable Life, Lehman Brothers

Great post and raised a smile on such a dry and occasionally stunning thread - certain posters seem to think if they keep typing expositions that will lend their position some gravitas.

Amazed you could type the above with your tongue so firmly becheeked.