The Irish Banking Inquiry turned to the bank auditors for an explanation of how the Irish banking system collapsed.  In particular, the Banking Inquiry wanted to know how the banks could have failed shortly after receiving the equivalent of a stamp of approval from the auditors.

An audit partner from Price Waterhouse Coopers explained why.  He said

the primary purpose of an audit was to provide an independent assurance to shareholders that the financial statements had been prepared in accordance with international financial reporting standards (IFRS).

The focus of an audit is on compliance with standards and it was this compliance that merited a stamp of approval from the auditors.

Of course, the standards may or may not be fit for the purpose of disclosing to investors the information they need to make a fully informed investment decision.  In fact, he went on to say financial statements were

not intended to provide all the information that users may need to make economic decisions… Matters such as stability and capital adequacy are outside the remit of accounting standards.

This is a very important point and needs to be repeated.

Global accounting standards are not designed to ensure investors have the transparency they need in order to make fully informed investment decisions.

It is one thing when I, who is not certified as an accountant, say this in Transparency Games.  It is another when a certified accountant who is a senior audit partner for one of the three largest global accounting firms makes the same point while testifying before a government inquiry.

Since global accounting standards are not designed to ensure investors have the information they need to make a fully informed investment decision, investors need to have another way of obtaining the information they need.  This is where the Transparency Label Initiative comes in.

Through the use of a label to signal transparent/unrigged investments, the Initiative is able to exert pressure so firms like banks disclose all the information that is necessary for investors to make fully informed investment decisions.