by: Sigurd Rinde
But one thing is missing from the discussion - finding the root cause for it all. Is there a single thing that lies behind it all? If found all would be much easier, at least the issue of how to avoid such calamities again.
What assumptions are we making that we do not know we're making?
And the root cause could be what? Allow me to posit that it is:
Not the accounting reports as such, I'm fine with those, it's the method of capture and representation of facts that I see as the culprit.
This how far that technology has come in 515 years.
- That is how the gentlemen at Parmalat could use Tipp-Ex on a piece of paper and suddenly show that they had in excess of € 4 Billion on some Cayman bank account. Except a few extra naughts on one piece of paper does not make much sense the day you need the cash.
- That is how a few well placed misplacements or closed eyes at Satyam could make them pretend to be much richer than they were.
- That is how reports has errors, always, and is delayed, always, making the whole thing a charade similar to driving a car by a dirty and cracked rear view mirror.
- That is how layers of rubber stamping or at best, wild guessing using statistics, by rating agencies is needed to give a whiff of reality for the nifty Wall Street repackaged packages - the quality of which we now know too well.
- That is why changes to a house owner's economic status never have a chance to trickle through the layers of CDOs and whatnots all the way to the holder of the debt in some far away municipality on the other side of the world.
- When you keep the same information in different places, in different formats, you will, and be in no doubt - you will have errors and doubt. To fight that queasiness we have the usual band aid mechanism named CPAs, reconciliation and regulation.