117: Niamh Brennan

‘Auditing and accounting is not a science, it’s an art.’

A chartered accountant with a PhD, Professor Niahm Brennan has had a distinguished career glittered with accolades, and in this riveting discussion shares her insights on the accounting profession and the fact that stricter accounting standards don’t always lead to better outcomes.

CIARAN RYAN: Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants. What a pleasure it is today to welcome Niamh Brenna, who is the Michael MacCormac Professor of Management at University College Dublin, which I might ass is my old alma mater. She’s also a Founder Academic Director at the UCD, that’s University College Dublin, Centre for Corporate Governance. Professor Niamh Brennan qualified as a chartered accountant with KPMG. She holds a PhD from the University of Warwick, and she’s also Chartered Director of the Institute of Directors in London. She’s authored over a hundred publications and in recognition of her research, Niamh was elected to the Royal Irish Academy in 2020, Ireland’s highest academic honour. Niamh also received the 2018 British Accounting and Finance Association distinguished academic award and was inducted into the Interdisciplinary Accounting Research Hall of Fame in 2019. In fact, she has a string of awards to her name and is also Associate Editor of the British Accounting Review, among others. In a survey of alumni, Niamh was voted one of UCDS top three lecturers from the 2000’s onwards. Niamh chaired the Irish government’s commission on financial management and control systems in the health services and was vice chair of the Irish government’s review group on auditing. Niamh is an inaugural honorary fellow of the Institute of Directors in Ireland and an honorary fellow of the Society of Actuaries in Ireland. That’s quite a CV Niamh, and it’s an honour to have you on CFO Talks. Here at CFO Talks we’ve been looking into some of the difficulties and headwinds facing the auditing and accounting professions, and you were recently cited in an Accounting Weekly article warning about the kind of unconscious bias that can enter into the profession and the fact that stricter accounting standards don’t always lead to better outcomes. Now, perhaps we can start there. First of all, welcome, we’re talking to you from Dublin at the UCD Belfield campus, where I spent many, many, long and interesting days and evenings. It’s great to have you, if you just expand on exactly what we mean by unconscious bias as an auditor, regardless of your professional code of ethics, you’re going to find yourself inclined to look away when millions of rands or dollars or euros of audit fees are at stake. Is this the kind of bias that you’re talking about?

NIAMH BRENNAN: Your description there about looking away, that would be a more deliberate activity than unconscious bias. Let me just tell your listeners where I’ve got some of my ideas on auditors’ unconscious bias and it’s from an article in the Harvard Business Review in November 2002, and the title of the article is Why Good Accountants Do Bad Audits. It’s written by Max H. Bazerman, George Loewenstein, and Don A. Moore. It came out after Enron, which happened in 2001. The premise of the article is that the good accountants don’t set out to do bad audits, and having more and more rules and regulations is not going to stop the problem in auditing, and the problem is subconscious bias. So the article says, for example, Ciaran, our desire has powerfully influenced the way we interpret information and if we’re motivated to reach a particular conclusion, and then we usually will reach that conclusion, and the way we do it is we discount facts that contradict the conclusion that we want to reach. The article describes the way in which they conduct experiments and if you classify participants in a court case as the plaintiff, or you classify them as the defendant, no matter what you do, you cannot stop the participants on the plaintiff’s side reaching a bias decision, for example, about the amount of damages after a car crash, and the defendants would equally reach a very biased conclusion. No incentive mechanisms can stop that happening. The article concludes that auditing is a very fertile ground for subconscious bias. I suppose, without going into too much detail, one of the main reasons for that is that although accounting is portrayed as being very precise, a science, in fact, it is the subject of enormous ambiguity because of the extent to which accounting is based on estimates.

CIARAN RYAN: And judgments as well.

NIAMH BRENNAN: Right.

CIARAN RYAN: I guess another kind of bias that would be very prone to the audit profession would be the Stockholm syndrome effect, where you are spending, and I use this analogy here of the abusive relationship, you’ve spent years suffering abuse, and yet your sympathies are with the abuser. However crude that analogy is, would you agree? There’s something in that you just get too close to your client.

NIAMH BRENNAN: The article refers to, apart from the ambiguity inherent in accounting, another reason that makes auditing a fertile ground for subconscious bias is attachment, that auditors are motivated to stay in the client’s good books, and an awful lot of what goes on in auditing and in, let’s say the big four practice, is the focus on client relationships. So that attachment is very conducive to the subconscious bias. Another one that’s relevant is familiarity, so the auditor doesn’t want to find fault with the client, and we’re more comfortable finding fault or finding against a stranger than we are against somebody who we know.

‘You have those kinds of tensions between professionalism on the one hand and commercialism on the other hand.’

CIARAN RYAN: I guess this really does come down to the financial incentive, where you have large amounts, millions of euros or rands in audit fees that are involved, and let’s say that you’re the senior audit partner in the engagement, you’re going to be in a tricky position if you’re saying, I cannot actually sign off on this, I cannot agree to this particular entry if there’s going to be 60 million involved and we get fired as a result of this. So it’s the financial incentive that really lies at the heart of this. Then the question is, is there a way that we can solve this?

NIAMH BRENNAN: What the article concludes is that you can’t solve it by having more rules and regulations because they’re not really getting to the root of the problem. You’re absolutely correct, Ciaran, this is big business, this is very, very big business, and the concentration of big business in four very large global firms, the big four as they’re called, KPMG PricewaterhouseCoopers, EY and Deloitte. Auditing is a public good, so you want good quality audits to protect the general public. But auditors have what’s called competing logics, on the one hand, they’re running a business where the bottom line profit is relevant, and on the other hand, they are meant to act as professionals, which is to put their own self-interest second to those of their clients and to the wider community in which the clients operate. So you have those kinds of tensions between professionalism on the one hand and commercialism on the other hand.

CIARAN RYAN: One of the suggestions that has been made to solve this problem is where you actually remove the remuneration from the client. So the client would be paying over audit fees to an independent body in South Africa, maybe the independent regulatory body for auditors, and they would appoint the auditor in that particular case. So who’s paying you then becomes an arm’s length type of arrangement. Would that be a feasible way to go forward?

NIAMH BRENNAN: I do think it is a significant weakness in corporate governance, that company law, and I presume it’s the same in South Africa, which is a common law country, but company law provides that the shareholders at the annual general meeting appoint the auditors and also that the shareholders agree the remuneration for the auditors, or they are allowed by law to delegate that activity to another party, which generally is management. So the lever that shareholders in law have, which is to set the remuneration of the auditors, they delegate to the very group that the auditors are meant to be checking up on. So that to me is a very serious flaw in the extent to which shareholders engage in the remuneration setting of auditors. I think that they could tighten up that, whether doing it by having a completely separate body, I don’t know whether that’s the right way of doing it, but I certainly think the shareholders need to take the responsibilities seriously in being active in the setting of auditor’s remuneration. That’s the one way you will get the attention of the auditors.

CIARAN RYAN: So it’s almost like having a shareholder pressure group that would be looking into this specifically. You do have shareholder activists who bring up all sorts of issues related to environmental compliances, but one of the things they don’t seem to be doing is looking at the audit engagement and whether this is in the best interest of all the stakeholders. Would you agree with that?

NIAMH BRENNAN: Well, I think it’s arguable as to whether our shareholders, particularly institutional shareholders, are active. They have a very different perspective than, for example, the ultimate beneficiaries of the funds they’re managing. So institutional shareholders, I would argue, are not active enough, they have a short-term perspective, an yet the pensioners and the future pensioners, who depend on their activities, have a long-term perspective. So there’s quite a mismatch between the legal owner of the shares versus the ultimate beneficial owner of the shares.

CIARAN RYAN: In South Africa the Independent Regulatory Board for Auditors has introduced the audit rotation, but that only becomes effective in about two to three years from now, where every ten years you have to rotate your auditor. So a lot of the companies on the Johannesburg Stock Exchange have already started doing that, most of them are compliant with that. There’s been a lot of debate about is that the right way to go, and the chartered accountants’ body in this country, the South African Institute of Chartered Accountants, says that that that can create problems. Now, I’m sure there’s an argument in that it takes a long time to get to know a client, and yet there are people on the other side who would say, listen, if you cannot in one year get to know your, your client’s business, then you should probably be doing something else. Maybe just explain in Ireland do you have audit rotation, is this becoming a common thing in Europe? What about that argument that it takes a long time to get to know your client?

NIAMH BRENNAN: First of all, because of our membership of the European Union, we have similar auditor rotation rules, where they must be rotated maybe after ten years, the maximum they can stay is 20 years. But Ciaran, I think the problem is more than auditor rotation and you have to remember that something like in the London Stock Exchange, 97% of listed companies are audited by the big four. There is only four of them. So they operate kind of what goes around, comes around. Some colleagues have just recently done a study and we have characterised the big four as colleague groups that in certain circumstances the big four would argue they compete against each other and it’s a very competitive market, but we argue that actually, when it comes to things like regulation and all the rest, they have a strong incentive to behave as one. There is only four of them. So the rotation rules and what goes around, comes around. Then with other regulations around the extent to which auditors can’t offer non-audit services, the four of them are in effect consuming the same large cake, which is auditing of listed companies, plus allied non-audit and other services.

CIARAN RYAN: You mentioned the big four as really is kind of a cartel arrangement and there was a book done by…

NIAMH BRENNAN: I didn’t say that Ciaran, I think you have to be a little bit careful. We characterise them as a single colleague group, where they had to perform as a single team when it comes to regulatory threats that they experience from time to time. To say that they’re a cartel is going, I think, an unacceptable step further, which is that they’re are somehow price fixing as a single group. I don’t think there’s any evidence to the effect.

‘The model that the big four operates is based on the assumption that most staff will leave.’

CIARAN RYAN: I was referencing the book called Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks, where he pointed to the kind of regulatory interference that can happen amongst the big four. So you have a revolving door type phenomenon where people will leave Deloitte and they’ll move to one of the other big four companies. It’s quite rich in data in the book where regulations in places like Luxembourg were heavily influenced by people who came from that. So they come with a particular bias that they’ve worked for the big corporations and basically, what Richard is saying there is they’re doing the bidding of those corporate clients. So they’re keeping that revolving door open for themselves. I don’t know whether you would agree with that, but I think that the book makes a fairly compelling case that that is what happens.

NIAMH BRENNAN: The model operating in the big four is that you go in as a trainee accountant, you get professionally qualified and three, four, five, six years later, you leave the firm. So the model that the big four operates is based on the assumption that most staff will leave. It’s an absolutely brilliant model because they then have their people in all kinds of different roles, where they have great relationships through their alumni. So KPMG would see me being a lecturer in UCD as good for KPMG because I am carrying the KPMG logo and in a way I’m promoting the firm in front of my students. So they have key people in key positions, including within the regulators, and again, there would be a concern in the UK where there’s a lot of proposals for audit reform. There’s a great concern that the Financial Reporting Council became too close to the profession. Of course, at the end of the day, auditing and accounting is not a science, it’s an art. It’s a highly, highly political process. So all accounting standards just don’t come out of nowhere, they come out of millions spent on lobbying, and similarly auditing regulations, it’s a highly political process.

CIARAN RYAN: There’s been some research in various parts of the world, looking at the kind of skills required of a modern CFO or a senior financial executive, and I don’t think accounting courses cover these disciplines well, like leadership and team management, human resources strategy, which is why a lot of CAs eventually go on and do an MBA. From your chair in academia, give us a sense of how the accounting curriculum is adapting to the demands of the marketplace.

NIAMH BRENNAN: We would teach accounting at undergraduate level, which would be focused on…a lot of it would be on let’s say the mechanics of accounting, how I deliver my module is that I want my students to have a critical perspective. I want them to be doubting Thomases. I want them to understand the limitations of accounting, as well as the strengths. So the way I do that, for example, is I start every class with what I call news of the week. The students are meant to give me the news item and the news items are contemporary issues in financial reporting, a lot of the news items, because they’re more interesting, relate to financial reporting failure and, of course, the benefit of looking at failures is that you can learn from failures. But I also like looking at failures because I like the students to realise that nothing in financial reporting and auditing is perfect, so I want them to have a critical perspective, a doubting Thomas, and I think that they will end up if they become, for example, CFOs are non-executive directors or whatever, by having that critical perspective, they will be able to execute their roles better.

CIARAN RYAN: One of the things that we’ve had in South Africa, which is along the same line you’ve just been talking about, there’s been a couple of accounting scandals like Steinhoff, which is billions and billions of dollars wiped out in value through accounting ledger domain. Another one was Tongaat Hulett. Now, basically in both of these cases, I think in the Steinhoff case it was the complexity of these financial transactions, which makes it very hard for any outsider to really track what’s going on there, in the case of Tongaat Hulett, which is a company involved in sugarcane production for the most part, and also owns land, they were falsely recognising revenue. When you’re doing a land deal, that can be quite complicated, there are certain triggers that have to be reached before you can actually count that revenue. Anyway, to sum it up, it was prematurely counted and some of those deals had to be unwound and so on. This brings it back to the point that you raised about the element of judgment and interpretation that goes into this. This, of course, and in my belief, you have that Stockholm syndrome effect there, where if I really stretch this, perhaps we could count this as revenue, and you can see the kind of pressures that go on the auditors when doing that kind of engagement. Is this something similar, are there similar cases happening in Ireland, in Europe, that you’re examining?

NIAMH BRENNAN: It’s the world over, I suppose. Last semester, the company collapsed that we looked at most was Wirecard, the German payments company, and it was a complete and utter fraud of the worst type. It turns out that €1.9 billion on the balance sheet didn’t even exist. That was a brilliant example of subconscious bias because the Financial Times began to write about that case for well over a year before the collapse. The Financial Times was getting some information from whistleblowers and, remarkably, the German regulator defended the company, as it turns out, wrongly. The COO is now on the run and it was a total mess. But again, referencing something I said a minute ago, Ciaran, there was a complexity in the business, and when you talked about complex transactions, Warren Buffett’s quote came to my mind, “If I don’t understand the accounting it’s because they don’t want me to understand the accounting.”

So it doesn’t have to be complex, maybe it’s complex for a reason and maybe the motivations for making things complex are not straight up motivations.

‘If you put human beings under ferocious pressure, don’t be surprised if they begin to behave dysfunctionally.’

CIARAN RYAN: I think another one was Luckin Coffee, which is a Chinese competitor to Starbucks, where they were falsely counting the number of kiosks that were opening up and revenue was being falsely counted on the basis of the number of kiosks that had been opened. So again, there’s pressure on CFOs, it must be actually quite a challenging job these days when you’re particularly in a high growth company, you’re going to get listed on the stock exchange, you’ve got to please shareholders, and somehow you’ve got to slip a few key bits of information past the regulators. Would you say that that is a key risk that is facing CFOs today, where they’re under this kind of pressure where there’s a lot of money involved and you’ve just got to look the other way?

NIAMH BRENNAN: I always say to my students, particularly the MBA students, that being the CFO of a publicly listed company is, I would say, an incredibly pressurised job. The market has to take some responsibility itself when things go wrong because if CFOs miss market expectations, they’re absolutely excoriated, punished beyond belief, by missing the numbers. So they learn to manage the numbers, to make sure that they don’t miss them and that they do meet market expectations. But of course, as soon as you begin to manage the numbers with absolutely the best interest of the company at heart, it doesn’t take a lot to slip into manipulation. Again, that happens because if you put human beings under ferocious pressure, don’t be surprised if they begin to behave dysfunctionally. So the market and investors have got to take some responsibility for the hard-nosed way in which they drive these listed organisations that results in theses unfortunate human beings, working in these organisations behaving dysfunctionally because that’s the way human beings are.

If you pressurise them with targets, the targets are the wrong targets, then don’t be surprised if bad things happen.

CIARAN RYAN: Would you say the accounting profession is in trouble at the moment and there is a crisis of confidence around the profession?

NIAMH BRENNAN: I think that they are eroding reputation on a continuous basis. Every country in the world has these big corporate collapses. Everybody in those countries is asking themselves, how could that possibly have happened? What were the auditors doing? I think it’s a kind of reputational death by a thousand cuts. If I was one of the big four, you’d be also wondering, is there a risk that there would be something so absolutely seismic that Arthur Andersen could happen a second time? Arthur Andersen being Enron’s auditors, which no longer exists because in the collapse of Enron, it also brought down the auditor itself. That’s why they were left with just four. But it must always be a risk to each of the big four that maybe something so seismic could happen to one of them that it will go from four to three. The other problem is that four is too small, it’s a little oligopoly, just four of them and that again is quite risky. So where it’s going and how it’s going to play out, I don’t know, but they certainly are suffering considerable reputational damage time and time and time again from corporate collapses that just should not have happened.

CIARAN RYAN: One of the things they are introducing in South Africa is this phenomenon of co-audit, where you have one of the big four, which would have a junior audit partner, a different firm, generally a black-owned firm, to try and upskill them and give them exposure to this level of the bigger companies in the environment. That is starting to happen, to some extent, but very, very slowly. I’m interested to hear about your time as Vice Chair of the Irish government’s review group on auditing. Why was this body established and maybe just briefly describe what was the outcome?

NIAMH BRENNAN: That body reported in the year 2000 and the reason it was established was because it turns out that some of Ireland’s largest banks were colluding with customers and opening non-resident bank accounts, and because of being non-resident they could evade tax. In one case, just to illustrate, a farmer in say Ballygobackwards, the bank manager opened an account for the farmer in Ballygobackwards and gave the address as 1 Main Street, New York. So that raised questions about the quality of audits, if that was going on wholesale within banks, where were the auditors? So the government set up the review group on auditing, and we came up with 80 recommendations, but I suppose the biggest one was that we recommended that auditors remain self-regulated, but we proposed that it would be supervised self-regulation. That report led to the establishment of a supervisor, the Irish Auditing and Accounting Supervisory Authority. When the report came out, I remember distinctly the president of the Institute of Chartered Accountants in Ireland and its chief executive publicly saying more or less, the end of the world was nigh because of this report. That was July 2000. Enron happened in October 2001, and the exact same people came forward and said in relation to auditing and auditing regulation, everybody should look to Ireland because we had the best auditing regulation in the world. So the very report they criticised when it was published, they next claimed when it suited them post-Enron. So we now have in Ireland and probably were one of the first countries in the world that it is supervised self-regulation.

CIARAN RYAN: Does that supervised self-regulation work in practice?

NIAMH BRENNAN: I’d say, Ciaran, it’s like every corporate governance mechanism, they work but just up to a point. So it’s preferred to have a supervisory body like that, than not to have it, but I don’t believe it executes as forensically maybe as the public might like or expect.

CIARAN RYAN: I guess there’s a lot of public attention on a body like that. If there is an audit failure in Ireland or that in some way involves Irish customers, that they would look to that body and say, where were you, were you asleep at the wheel or did you have this one under control?

NIAMH BRENNAN: Funnily enough, actually, the most recent major question marks over auditing came out of the banking crisis about ten years plus ago now. There were serious question marks over auditors. But in relation to the regulator, the regulator that got the most criticism was the financial regulator, rather than the auditing supervisory authority. So I would say it gets relatively little attention, it’s one of those bodies that just operates a little bit below the radar.

CIARAN RYAN: Can you give us a sense about UCD and the student body itself, people who are studying accounting there, what do they do with their careers generally? Is there any sort of follow-up, do they go on and become chartered accountants? Do they become accountants in business practice? What do they do?

NIAMH BRENNAN: First of all, we offer a general business degree, the Bachelor of Commerce. We have some other degrees where we have business and languages, we have a business and law degree, but we would tend to be operating general business degrees in which accounting would be an element in the courses. A fairly sizable portion of the student body would go on and go into the big four and qualify as chartered accountants. In Ireland, the qualification of chartered accountant would be seen as the best-in-class premier professional qualification. So a lot of our top students, and we getting the top students in the country, a lot of our students are going on to qualify as chartered accountants. That is the premier entry route into business in Ireland. So a lot of CEOs, CFOs obviously, non-executive directors, they would all have a chartered accounting qualification. It is the premier business qualification. Of course, lots of our other students go into the other disciplines, HR, marketing and so on. I’d be less familiar with those.

CIARAN RYAN: A lot of research has been done into the role of the CFO, and there’s a study out of Queen’s University in Canada called from CA to CFO, which looks at all of these disciplines that are required of the CFO. I’ve mentioned a few of them before, like a human resources, strategy.

you’re sitting at the right hand of the CEO.  So you’re kind of the source of information, you’re also expected to be this font of knowledge on just about everything. There’s a paper that I was just looking at recently called An Analysis of the Role of a Chief Accountant at Guinness 1920 to 1940, it’s quite interesting. Basically, we’re saying that the role of the CFO has evolved and there are so many more things, you’ve got to be a master in IT, you’ve got to understand enterprise software, all that kind of thing. This paper goes back, and it grounded me a little bit because it seems to suggest that the same kind of disciplines that we’re talking about today as being new were expected back in the 1920s, a hundred years ago, and this is Guinness, an Irish company. What’s your view on that? Has the role of the CFO changed or is it pretty much the same as it has always been?

NIAMH BRENNAN: I look back on my career, starting with my training and KPMG, and that was a wonderful four years, I have to say. But there was a huge emphasis on the technical side of accounting, and I got trained in technical things. At this stage, coming towards the end of my career,

the training that I would have found extremely valuable, but didn’t get, was on the soft side, the soft skills. In fact, I’m just completing this year, my third year in a master’s in coaching. I undertook the master’s in coaching because I wanted to learn more about the soft skills. I really wished that I had done that much earlier in my career. I really think that on top of the technical expertise that we chartered accountants would have, I really think that a deep understanding of the soft skills of the human being, of human psychology would be a huge asset. In fact, my son was just about to start as a software developer in Microsoft and I said to him, if you get a chance to do coaching, do it sooner rather than later, learn more about the soft skills. I think that’s what would help you to get on more than the technical skills.

‘I would say I am extremely conscientious in terms of trying to support my students and their learning.’

CIARAN RYAN: I’m also keen to understand why your peers voted you as one of UCD’s top three lectures for the 2000’s onwards. I did a BCom at UCD and it’s a lovely university, I really enjoyed it,

but accounting, was not one of my strong suits at that time. Explain why were you voted one of the top three lectures there?

NIAMH BRENNAN: I’m not a perfect lecturer, Ciaran, and the students say nice things about me, but they sometimes also can say…they have suggestions for me for further improvement. But one of the things that I think they would all say about me is that I’m very enthusiastic about the subject, and I try to bring it to light, I try and give it some colour. As I’ve described earlier, my news of the week at start of every lecture, they love that, and there are other things that I do that just make them appreciate accounting beyond its technicalities. So enthusiasm is one reason why I think the students enjoy my lectures. The other reason is because I really love my students, and I’m not just saying that, I’m really committed to my students. Again, going back to my coaching masters, and one of the things in coaching is that you have what’s called unconditional positive regard for your coachees. When I came across that phrase, which they use a lot in coaching, I said, that’s exactly how I see my students. I have unconditional positive regard for them and especially for the weaker students because I think that they need the help the most. So I would say I am extremely conscientious in terms of trying to support my students and their learning.

CIARAN RYAN: Fascinating. Okay, a couple of quick questions, Niamh, before we wrap up. We’ve talked about the accounting profession being under this kind of intense scrutiny, the world over, the fact that accounting is a public good and it’s not a private one. This is a fast-evolving space, you’ve got new IFRS standards, which are attempting to guide accountants in areas like revenue recognition, lease accounting and the like. Have we gone too far with the standards? I think you alluded to that before, but maybe we can just touch on that again, and how do we bring accounting back to its fundamental principles?

NIAMH BRENNAN: Accounting standards are quite different now than, for example, they would have been in let’s say the ‘70s, and they have evolved largely, in my opinion, influenced by the Americans, and largely influenced by some kind of economic type thinking that goes on in universities, like the University of Chicago, whatever. But the fundamental focus of modern-day accounting standards is decision usefulness, so that financial statements should be providing investors with data that helps investors make decisions, and the information should be useful for decision-making. I referred at the start of this podcast to the ambiguity in accounting, but the information useful perspective has increased the ambiguity in accounting, because the numbers are based on, let’s say future expectations. A more traditional perspective on accounting and accounting standards is that the purpose of accounting is not decision usefulness, but actually stewardship, and that the objective is that you use accounting to hold people to account, accountability for their stewardship of the business. Stewardship would bring you back to possibly more objective accounting measures maybe based on historic costs or whatever. I think accounting standards have made things worse. Again, going back to the banking crisis, accounting standards were criticised as being partly responsible for the banking crisis. Banks are cyclical businesses and the accounting standards instead of being anti-cyclical were changed to being procyclical. So when the crash came, we were hit harder than had the banks been allowed to account for things in an anti-cyclical way.

CIARAN RYAN: You mentioned the banking crisis in Ireland and it just reminded me of the Wells Fargo crisis, which happened in the last few years, where accounts were being created, not out of nothing, but I think they were actually created out of nothing, and fees were being charged to those accounts. There were real people and there was real money involved there, but it sounds like a very similar thing. Again, the question was where were the auditors in all of that?

NIAMH BRENNAN: First of all, just to remind your listeners that the chief executive of Wells Fargo asked staff to open eight accounts for customers, why eight? He said because eight rhymes with great. But another area of interest of mine is silence, my research is on communication in financial reporting, and I think it’s what’s not said is as powerful as what is said, silence. Not so much relevant to financial reporting, but it’s the whole issue of silence within corporations. So how did the chief executive get hundreds of staff to do that? You have to think about the culture in organisations, the culture of silence, the culture of people doing wrong, engaging in wrongdoing, being silent about it. Ciaran, we can’t be blaming the auditors for absolutely everything that goes wrong in organisations. You have to hold the chief executive to account, well, he was held to account, he’s no longer the chief executive. You also have to ask yourself about the culture in financial institutions that would allow such a thing to happen.

CIARAN RYAN: Here’s my final question, give us a sense of how the Irish economy is doing,

is it recovering from the Covid crash? Are there bright spots on the horizon? I know Ireland went through a terrible period after 2008, the financial crisis, has there been a rebound from that?

NIAMH BRENNAN: Well, we came out of the banking crisis and we were probably one of the hardest hit, we had to be bailed out by the European Union, the first country ever to be bailed out by the European Union. But absolutely remarkably, we bounced back from that remarkably well, and much quicker than people would have thought. Now, we went through a period of pretty tough austerity, it was a very tough few years after the banking crisis, but we came well out of it. We’re now in Covid and Covid is not going well for us at all. We’re in the umpteenth week of level five lockdown, the numbers are continuing to go up, notwithstanding that, we have no idea yet how much, much this is going to cost, but I would say it’s not going to be a pretty picture. We’re spending an absolute fortune borrowing money to try and get over Covid, and all of this problem with the vaccine and the row between the European Union and the UK about supply of vaccines. So the atmosphere in the country now is getting pretty demoralised because we’ve been at this now for over a year and we don’t seem to have any end in sight. When I talk about end in sight, I mean the end of Covid on the one hand and then the long-term effects of Covid, which is having to pay back all of the money we’ve had to borrow to fund the Covid crisis.

CIARAN RYAN: Which is pretty much the governmental response the world over is money issuance and just pump it out as fast as you can. There are always consequences to these things. The United States, for example, increased their money supply in the last year, 25%., it’s trillions of dollars the figures are so big that you’ve got to see it on paper to understand how much that is. There are consequences to this which will play out in the years ahead, and I’m sure it’s the same in Ireland.

NIAMH BRENNAN: Yes and again, I suppose, one has to prioritise a person’s health over money, but we will be paying for this for a long time. I tend to be a glass half empty person than a glass half full person, and maybe we will bounce back out of this much better than we expect, just like we did after the banking crisis. Hopefully we will.

CIARAN RYAN: Final point, you said you’d done a research paper, could you just remind me what that research paper was about and whether it’s published, and can you share it?

NIAMH BRENNAN: I think the one I was referring to because I have loads of research papers, but the one I was referring to was with the PhD student, Neil Dunne, and another colleague, Collette Kirwan. What Neil did was he analysed the performance of the big four, eight big four audit partners who were summonsed before the banking inquiry in Ireland, and he analysed their performance. One of the findings, not all of the findings, but one of the findings was that they performed as a single unit, rather than four competitors. They’d like you to think that they were four competitors, but when there was a huge threat, which was a regulatory threat, the four of them, our argument was that the four of them had an incentive to perform as a single unit, as opposed to competing against each other during that event. That’s published in a journal called Accounting Organisations and Society. It’s just in press at the moment, so it is publicly available.

CIARAN RYAN: I will definitely look out for that. I want to thank you very much for coming on and talking to us on CFO Talks. It was a fascinating discussion; I think we covered a lot of ground. This is going to be extremely useful to CFOs and I think it anchors them in what is the fundamentals of their job. I think it’ll help them sort through some of these issues that we’ve been talking about, the biases, the unconscious, the conscious, and hopefully navigate their way through what is probably one of the most terrifying periods for a CFO with Covid and economic crashes all around us. So I really do appreciate you coming on and talking to us and I’d like to stay in touch and get you back on in the future, hopefully in a few months for a catch-up.

NIAMH BRENNAN: Ciaran, a thousand thank yous.

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