Via Going Concern: Auditing the Fed? Good Luck with That
I just can't get enough of this idea of a Fed audit. So much so that I dedicated my Friday Going Concern column to the subject and will keep beating it to death until it's a pulpy mess on the ground. Hopefully by then this shit will make sense, until then let the beatings continue!
I have often been accused of taking the term “audit” in “Audit the Fed” a tad too literally. Thinking as an auditor might stem from spending far too many hours in Audit class (I’m not a CPA, I just play one on teevee). Nevertheless, I cannot help but wonder what proponents of a Fed audit think they’ll find once they crack open the books.
My primary concern is that Fed accountants do not use GAAP but rather a bizarre hybrid of GAAP, governmental, and WTF accounting. In fact, they write their own 325 page manual on accounting for Federal Reserve Banks and if you’re really really bored you can find that document here. What auditor is qualified to audit those statements? In no other situation would the client hand you their accounting manual and say, “Do us a favor and make sure we prepared our statements in accordance with our own special rules, would you? Thanks!” except in this case. And maybe that’s where I’m hung up on the word “audit.”
Some have argued that the “audit” in “Audit the Fed” actually means “crack open the books and figure out where the bailout bodies are buried.” Okay, that’s all well and good but even if that’s the case, how would an independent, outside source identify these bodies? It goes back to the client-provided handbook and we’re back at square one: defining the Fed balance sheet as a freak of nature.
It’s right there in the footnotes - pulling out the closest Fed annual report I’ve got (Richmond Fed 2007), both Deloitte and PwC agree that the Fed is a special case in Note 3: Significant Accounting Policies:
Accounting principles for entities with unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies.
Head over to Going Concern for the rest.
If you're feeling up for a clusterfuck, check out my other takes on this freaky Fed audit business: Fed Economic Rocket Scientists on Auditing the Fed, Liquidity Crises, They’re Comin for Dat Ass, Bernanke: Defining “Federal Reserve Accountability”, Auditing the Fed: Redux, and You Want to Audit the Fed. But Why?