Munger's periodic criticisms of accountants usually have merit, and always give us
something to think about. Whenever we have 'rules' and 'money', we have the opportunity for misrepresentation and abuse. There's no doubt accountants too often follow rules and not common-sense concepts. Being not only a lawyer but the publisher of a major law journal, we wouldn't naturally expect him to turn the same sort of spotlight on the one profession that routinely makes lunch of professionals in other disciplines who don't adhere to the letters of their rules. Still, he always makes a good point.
But his comment of accountants being under pressure because of 'who was paying them' strikes a particularly interesting cord with us, his fellow shareholders, doesn't it?
Although it does happen, it's not all that often that major US corporations fire accountants because of a disagreement of accounting policy. They sometimes may fire them for fees, or because they've outgrown the original small firm, or when the accountant has unrelated AA-type scandals, or conflicts of interest, or a variety of reasons. But when a major company fires an accountant for disagreement of accounting interpretation, that's reason to take notice. In any event, it's an event that should cause investors to develop their own understanding of the issues.
But considering Berkshire Hathaway is the only holding that I recall ever owning where a major accounting firm (Peat Marwick) was fired because the client CEO (Buffett) disagreed with a technical accounting decision (there was an 'earnings' but no 'tax' impact). We'll recall that at the time, Buffett did an excellent job of communicating his reasoning to us. http://www.berkshirehathaway.com/letters/1984.html
Nontheless, Peat Marwick's home office (not the local guys in Omaha) stuck by their ruling - right or wrong - and were rewarded by being fired from a very significant and (even then) influential account. Regardless of Buffett's persuasive (to us layman shareholders) argument - which I naturally agreed with, as it was explained - there was a clear threat, and when the client didn't prevail the threat was carried out.
Anyway, whenever Munger lays into that issue, I'm reminded of that Peat Marwick episode.
something to think about. Whenever we have 'rules' and 'money', we have the opportunity for misrepresentation and abuse. There's no doubt accountants too often follow rules and not common-sense concepts. Being not only a lawyer but the publisher of a major law journal, we wouldn't naturally expect him to turn the same sort of spotlight on the one profession that routinely makes lunch of professionals in other disciplines who don't adhere to the letters of their rules. Still, he always makes a good point.
But his comment of accountants being under pressure because of 'who was paying them' strikes a particularly interesting cord with us, his fellow shareholders, doesn't it?
Although it does happen, it's not all that often that major US corporations fire accountants because of a disagreement of accounting policy. They sometimes may fire them for fees, or because they've outgrown the original small firm, or when the accountant has unrelated AA-type scandals, or conflicts of interest, or a variety of reasons. But when a major company fires an accountant for disagreement of accounting interpretation, that's reason to take notice. In any event, it's an event that should cause investors to develop their own understanding of the issues.
But considering Berkshire Hathaway is the only holding that I recall ever owning where a major accounting firm (Peat Marwick) was fired because the client CEO (Buffett) disagreed with a technical accounting decision (there was an 'earnings' but no 'tax' impact). We'll recall that at the time, Buffett did an excellent job of communicating his reasoning to us. http://www.berkshirehathaway.com/letters/1984.html
Nontheless, Peat Marwick's home office (not the local guys in Omaha) stuck by their ruling - right or wrong - and were rewarded by being fired from a very significant and (even then) influential account. Regardless of Buffett's persuasive (to us layman shareholders) argument - which I naturally agreed with, as it was explained - there was a clear threat, and when the client didn't prevail the threat was carried out.
Anyway, whenever Munger lays into that issue, I'm reminded of that Peat Marwick episode.
