Inside the world of business

Ernst & Young called to account

ANY ORGANISATION, including large accountancy practices, are entitled to protect their reputations. But moves by Ernst & Young to short-circuit an inquiry by the Chartered Accountants Regulatory Board into their audit of Anglo Irish Bank sends out all the wrong signals.

Anglo is the single biggest Irish corporate failure ever, but only just. AIB is giving it a good run for its money. For that reason alone, its auditors deserve to be grilled. But the fact that the Anglo story is shot through with ethical and governance failures on a massive scale makes such scrutiny all but obligatory in the public interest.

It is beyond belief that taxpayers who have been hit for €29.3 billion are not entitled to know how it is possible that highly paid accountants who audited the bank missed all this. One thing that should not be lost sight of here is that audits – which are the bread and butter of firms such as Ernst & Young – are required by law. It is the quid pro quo for unlimited liability and in effect a societal contract, imposing an obligation on the auditors who earn their very comfortable livings off the back of it.

Rather than subject itself to scrutiny, Ernst & Young now appears to be trying to evade being held to account on the basis of a technicality.

They have told the court that no actual complaint had been made against them and no clear issue had been identified. Nothing to worry about then?

Hardly. If it is not abundantly clear to the partners of Ernst Young what the issue is, then they have a much bigger problem than they realise.

Google suffering as social web flourishes

GOOGLE IS clearly going through the difficult teenage years on its road to becoming a mature business and it’s hard not to feel some sympathy over its growing pains.

Overnight on Thursday it reported first quarter revenues of $8.58 billion, up 27 per cent on the same period in 2010, and an 18 per cent increase in profit to $2.3 billion.

But investors focused on how costs at the search engine had increased markedly in the quarter when co-founder Larry Page assumed the chief executive role from elder lemon Eric Schmidt.

Operating expenses ballooned to $2.84 billion or one-third of revenues, compared to $1.84 billion a year ago. Spend on RD also rose sharply to $1.23 billion, up from $818 million in 2010. The shares went down 5 per cent in after-hours trading on Thursday and were down over 7 per cent yesterday afternoon in New York.

The challenge facing Google is that while it is dominant in search and the lucrative advertising revenues associated with it, it has not been able to create significant other sources of revenue. It is particularly weak in the “social web”, where Facebook, Twitter and others dominate.

Google would seem to have little choice but to spend heavily before the opportunity passes. It will be Page’s job to convince shareholders it is the right course of action.