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Enron and Carillion are household names, not because of what they were, but because of the way
they failed. The extent to which the auditors can be blamed for these and many other corporate
failures is an important public policy issue. This interesting and well-researched book highlights
the role of accounting and auditors in some of the highest profile failures of recent years. It is a
useful contribution to the current debate on what needs to change in accounting and auditing
practice.
—Geoff Wilkinson held a range of senior economic and financial
positions with the British Steel Corporation before moving into
investment banking. He was finance director and subsequently
managing director of Laird plc, an FTSE 250 company, and
chair of the Audit Committee for the Eden Project.

This book is a first in that it examines a number of recent financial scandals and corporate
failures in the UK and further afield. Placing earlier pivotal cases in perspective, it then con-
centrates on current cases, culminating in a forensic financial dissection of the Carillion collapse,
using a variety of analytical techniques including financial modelling. By critically analyzing the
Carillion collapse, and other recent cases, it sets out a detailed analysis of what went wrong, and
who was to blame. An accompanying online resource also updates recent cases such as Patisserie
Valerie.
—Vaiz Karamatullah, former CFO of Arab conglomerates
in various Middle Eastern countries; presently trustee of
the Graham Layton Trust, a UK charity supporting free
eye care overseas.
Financial Failures and Scandals

This concise volume evaluates the cause and significance of recent corporate
failures and financial scandals, and how they reflect on the fitness for purpose
of the external auditors, financial reports, financial watchdogs, boards,
directors and senior management. Failures like the disastrous collapse of
Carillion, examined at length, have ultimately led to a crisis of confidence
not only in the audit process but in the entire process of financial reporting.
Revealing the shortcomings in audit quality, independence, choice and
the growing expectation gap, Financial Failures and Scandals questions if the
profession, its regulators or government watchdogs are adequately prepared
for the challenges of increasing regulation, public outcry and political
scrutiny in the face of inevitable future financial failures. The fundamental
structures of financial reporting, annual reports, boards of directors and senior
management are often found to have failed. Tighter regulation and new
requirements for reporting will inevitably result.
Drawing on extensive research and interviews with insiders, users and experts,
this unique book provides a compelling account of the profoundly disruptive
impact of financial failures on corporate and financial accountability.Topical and
readable, this book will be of great interest to students, researchers and professionals
in accounting and auditing, as well as to policy makers and regulators.

Krish Bhaskar was founding Professor of Accounting at the University

of East Anglia, UK and previously held positions at the London School of
Economics and the University of Bristol. He is the author of over 50 books
and has also worked extensively in the IT, consulting, investment banking,
automotive and forecasting sectors.

John Flower, now retired, was formerly Professor of Accounting at the

­University of Bristol, UK and Director of the Centre for Research in Euro-
pean Accounting, Brussels.

Rod Sellers, OBE, FCA, has spent almost 50 years in senior financial and
corporate roles in industry.
Disruptions in Financial Reporting and Auditing
Edited by Krish Bhaskar

Following the global financial crisis and the growing number of major
corporate collapses and financial scandals, confidence in the corporate
sector, and more importantly, the professionals who audit them, is at an
all-time low. Based on the authors’ extensive experience and unique
research (including interviews with hundreds of professionals, regulators
and whistleblowers) this topical series provides a uniquely accessible
insight into the criticisms and challenges currently facing the financial
reporting and auditing industry, and examines possible solutions.
At a time of unprecedented scrutiny and technological change, the four
complementary volumes (Disruption in the Audit Market, Financial Failures
and Scandals, Disruption in Financial Reporting and Disruption in Auditing)
critically examine the key debates, drawing on expert opinions from
top industry professionals. Together the four volumes combine into an
unparalleled contemporary overview and evaluate the future challenges
facing this vital part of our economy and society.

Disruption in the Audit Market

The Future of the Big Four
Krish Bhaskar and John Flower

Financial Failures and Scandals

From Enron to Carillion
Krish Bhaskar and John Flower

For more information about this series, please visit: www.routledge.com/

Disruptions-in-Financial-Reporting-and-Auditing/book-series/DFRA
Or
See the online companion volume with current updates: http://www.
fin-rep.org/
Financial Failures and
Scandals
From Enron to Carillion

Krish Bhaskar and John Flower

with contributions from Rod Sellers
First published 2019
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2019 Krish Bhaskar and John Flower
The right of Krish Bhaskar and John Flower to be identified as
authors of this work has been asserted by them in accordance with
sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Bhaskar, Krish N., 1945– author. | Flower, John,
1934– author.
Title: Financial failures and scandals : from Enron to Carillion /
Krish Bhaskar and John Flower ; with contributions from Rod
Sellers.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2019. |
Series: Disruptions in financial reporting and auditing | Includes
bibliographical references and index.
Identifiers: LCCN 2019004492 (print) | LCCN 2019006565
(ebook) | ISBN 9780429270611 (E-Book) |
ISBN 9780367220730 (hardback : alk. paper)
Subjects: LCSH: Business failures—Case studies. | Corporations—
Finance—Case studies. | Corporations—Corrupt practices—
Case studies.
Classification: LCC HG3761 (ebook) | LCC HG3761 .B445 2019
(print) | DDC 338.7/1—dc23
LC record available at https://lccn.loc.gov/2019004492
ISBN: 978-0-367-22073-0 (hbk)
ISBN: 978-0-429-27063-5 (ebk)
Typeset in Bembo
by Apex CoVantage, LLC
Contents

1 About this book 1

2 Regulation, regulators and reporting 13

3 Manipulating reports and creative accounting 25

4 Landmark scandals: the impact of earlier cases 38

5 Tesco, HBOS and Autonomy 51

6 Carillion: the collapse 67

7 Carillion: the blame game 81

8 Recent cases: Steinhoff and Conviviality 98

9 Conclusions: the aftermath 109

Glossary120

1 About this book

Background and focus of the failures in this book

This book is about financial scandals and failures. Financial or accounting
scandals are usually business scandals arising from intentional manipula-
tion of the financial statements. In this book we concentrate on misdeeds
by companies and their management.
The Competition and Markets Authority (CAM) and Kingman report
were published post-publication. Reactions to the CMA on the audit
market and the Kingman report on the replacement of the FRC can
be found in the online companion volume www.fin-rep.org. The CMA
only considered what we regard as ineffective solutions. The Kingman
Review was, in our opinion, far more effective, scrapping the Financial
Reporting Council (FRC) in favour of the Audit, Reporting and Gov-
ernance Authority (ARGA) with statutory powers making it a stronger
regulator with harsher penalties and the ability to investigate all company
directors. ARGA will also be able to make changes to accounts, have a
wider set of sanctions and can publish reports into a company’s con-
duct and management. The Government has said it would implement
the Review.1
The cases we deal with concentrate on more recent ones and involve
one of two main symptoms:

1 Misappropriation of assets (possibly theft) and then hiding the results

in the financial reports;
2 Intentional manipulation of accounts by management to improve
financial reports and the annual reports.

Who is involved in preparing financial reports?

The external auditors (referred to as auditors here) are the main external
check and balance for all companies over a certain size including both pri-
vate and non-listed organizations. The Big Four accounting firms (PwC,
2 About this book
EY, Deloitte and KPMG) dominate the auditing of Public Interest Entities
(PIEs) and have a stranglehold over the FTSE 350.2 We estimate that by
2025 or shortly after, they will have close to 100% share of this audit mar-
ket. In simple terms, the auditors usually have a pass or fail type of sign off.
A negative audit report is indicated by ‘qualified’ or by no audit opinion.
The Audit Committee (AC) is also significant in the accounts prepara-
tion with often continuous interaction with the auditors. The AC com-
prises some non-executive directors (NEDs) and the Audit Committee
Chairperson (ACC). The AC usually provides a report in the annual
report.The Audit Engagement Partner (AEP) is the senior auditor, usually
a senior partner of one of the Big Four, and it is he or she that signs the
audit report in the annual report. This is separate from the Audit Com-
mittee report which is part of the Annual Report.

Typical interactions in the reporting process

The AEP has interactions with the AC and also, depending on culture,
with the Company Financial Officer (CFO) and/or the ACC. The ACC
often takes a lead role in solving disputes between the CFO and the AEP.
Box 1.1 shows an example of a typical interaction for a specific issue.

Box 1.1 Interactions between AEP, ACC and AC3

Issue: identification of intangibles on acquisition

Arising from: IFRS implementation

• Following acquisition, AEP stated position clearly despite

doubts from CFO;
• CFO engaged an external valuer for the work;
• Valuation considered by AEP, then technical department
and AC;
• AEP questioned valuation, so AC agreed to revise downwards.

Issue: presentation of cash flow statement

Arising from: IFRS implementation

• AEP proposed presentation based on guidelines included in

relevant standard for first year of IFRS;
• Company accepted in first year but did not like the format – so
adopted alternative for subsequent year;
 About this book 3

• AEP warned CFO of risk of regulatory action and discussed

with ACC;
• CFO and AC adopted revised format – subsequently discov-
ered other companies had also used this format.

Issue: accounting for a complex transaction

Arising from: solutions for unusual transactions

• Passed up by more junior staff for discussion by CFO and AEP

but no initial agreement;
• ACC aware of problem at pre-AC meeting;
• CFO acquired more evidence to support his view based on
similar cases elsewhere;
• AEP checked with technical department and accepted the
proposal;
• Following agreement between AEP and CFO, then CFO met
with ACC to ensure he supported it;
• CFO and AEP jointly presented solution to AC, who asked
questions before accepting.

There is some merit for these interactions to be reported on and sum-

marized. Unresolved disputes can be clearly identified. Exactly how much
should be revealed needs further discussion, but nevertheless, we are in
favour of the disclosure of such interactions between these important
players in the reporting process.

The role of the regulators

The FRC introduced the requirement for the strategic report which is a
description of the business model, as well as a narrative section in the ‘front
half’ of UK annual and corporate reports. Note the Kingman Review has rec-
ommended that the FRC be replaced with an independent statutory regula-
tor called ARGA. We agree with the ICAEW4 assessment that the quality of
narrative and non-financial disclosures in the ‘front half’ of the annual report
has improved significantly in the UK in recent years. Of particular note are
improvements in relation to the business model, strategy, non-financial key per-
formance indicators (KPIs) and alternative performance measures (financial)
and drivers of long-term value creation. There is also a strong sense that the
‘front half’ has continued to evolve in response to the introduction of the strate-
gic report and changing market expectations. (That is not to say that there aren’t
major problems with many of the top front halves of typical annual reports.)
4 About this book
The FRC (although not without its own critics [now replaced]) has
reported a fall in audit quality. We maintain that this fall is due to the
convergence of a number of disruptive factors:

• Continuing government austerity policies eroding government

expenditure (and those firms depending on public spending);
• Brexit changing the focus for firms, and creating a fall in the value of
sterling;
• Low interest rates causing higher leverage and trapping highly geared
firms into a false sense of security whilst interest rates are low;
• Disruptive industries and sectors causing the growth in some and the
fall-off in demand for brick-and-mortar retail outlets and restaurants;
• Other disruptive effects, e.g. new technologies, the internet and IT.

Carillion – a pivotal event

A financial failure (and arguably scandal) which is pivotal to the future
of the audit market is the failure of Carillion, which took place in early
2018. Carillion takes a significant portion of our attention in this book.
Not since Enron has there been a case which has attracted such severe
criticism. More significantly, it argues for a major change to financial
reporting, watchdogs and auditing.
Its failure left a mountain of debt, job losses in the thousands, a giant
pension deficit and hundreds of millions of pounds of unfinished pub-
lic contracts with vast ongoing costs to the UK taxpayer. How could a
company that was signed off by KPMG as a going concern in Spring
2017 crash into liquidation only a few months later with a reported £5+
billion of liabilities and just £29 million left in cash? Moreover, all of the
Big Four were involved in Carillion in some way: one was the external
auditor; one was the internal auditor; two were tasked with reviews or
specialist help; and one became the administrator.
Stephen Haddrill, ex-chief executive of the FRC, said the CMA
should investigate the case for ‘audit-only’ firms in an effort to bolster
competition and stamp out conflicts of interest in the sector. This radical
idea would force the Big Four firms – Deloitte, EY, KPMG and PwC – to
spin off their UK audit arms into separate businesses (explored in depth
in Disruption in the Audit Market). Mr Haddrill’s intervention follows a
string of corporate accounting scandals, ranging from Carillion to Stein-
hoff in South Africa and Petrobras in Brazil. “There is a loss of confidence
in audit and I think that the industry needs to address that urgently”, he
said. “In some circles, there is a crisis of confidence.”5
Three of the four now say they will ban non-audit work for their largest
audit clients. This is entirely different from splitting the firms into separate
audit-only and consulting firms.
 About this book 5
Even this brief overview shows that much is left to be desired from
current audit practice, despite attempts to improve quality. We posited in
Volume 1 that the way that the current audit sector is configured makes
it unable to cope with current economic and disruptive conditions. This
volume explores in detail how, why and when auditing fails, sometimes to
catastrophic effect. Al so see Appendix 2.02.01
Recent financial failures and scandals – an overview
Table 1.1 sets out a selection of the largest recent global scandals.We have
concentrated on companies based in the UK, US, Canada and those with
a UK connection. Note, some famous UK cases are excluded as they are
discussed in detail in later chapters. Table 1.2 summarizes all the current
cases being investigated by the FRC (as of May 2018).

Table 1.1 Selection of the largest recent global scandals

Company Country Period Auditor Issue

Lehman US 2010 EY See Chapter 4.

Brothers
MF Global US 2010 PwC Poor trading decisions and fines.
Kept bonds off its balance
sheet. PwC paid out of court
settlement of $3 billion.
Colonial US 2009, 2018 PwC Ghost mortgages. PwC found
Bank court case negligent. Possible claim of
$5.5 billion (Now settled for
$335m).
Connaught UK 2009/10 PwC PwC fined £1.5 million over
misconduct in their audit.
Miller Energy US 2011 KPMG Assets overvalued by more than
Resources 100 times. Fine of $6 million.
Wells Fargo US 2011 to KPMG Aggressive cross-selling without
Bank 2018 permission.
Sino-Forest Canada- 2011 EY Ponzi scheme, falsifying assets.
Corpora­ China
tion
Olympus Japan 2011 EY Tobashi1 using acquisitions.
Corpora­
tion
RSM Tenon UK 2011 PwC PwC fined £5.1 million over
misconduct in their audit. See
Chapter 4.
Panasonic US 2012 Possibly Panasonic to pay $280+
Avionics onwards KPMG million for bribery law and
accounting fraud violations.
Tech Data UK 2012 EY EY fined £1.81 million over
misconduct in their audit.

(Continued)
Table 1.1 (Continued)

Company Country Period Auditor Issue

Gol US-Brazil 2012 Deloitte False audit reports. Deloitte

fined $8 million. See
Chapter 4.
Autonomy US 2012 Deloitte See Chapter 5.
onwards
Penn West Canada 2012 to KPMG Overstated profits.
Exploration 2014
KPMG US 2013 to Not Fine of $9 million for: a) insider
2017 relevant trading, b) six revolving
door cases and c) improper
relationships.
Merrill Lynch US 2014 PwC Fined $1 million for failing to
collect sufficient evidence for
compliance.
Quindell UK 2013 KPMG Fined £3.15 million for audit.
BHS UK 2014 PwC PwC fined £6.5 million for
audit. See Chapter 8.
Toshiba Japan 2015 EY Overstated profits.
Valeant Canada 2015 PwC Overstated revenues.
Pharma­
ceuticals
Alberta Motor Canada 2016 N/A Fraudulent invoices.
Association
Odebrecht Brazil 2016 PwC Government bribes.
Petrobas Brazil 2014 to KPMG Money laundering and
2017 after corruption.
PwC
Caterpillar US 2017 PwC Tax and accounting
fraud accusations (with
government).
GE US 2017/18 KPMG Accounting fraud.
BT Italy 2015 to PwC Overstated profits.
2017
KPMG US 2017 KPMG Received advance notice of
PCAOB inspections.
Steinhoff Global 2018 Deloitte See Chapter 8.
Carillion UK 2018 KPMG See Chapters 6 and 7.
1
A Tobashi scheme is a fraud where a client’s losses are hidden by an investment firm by shifting
them between the portfolios of other clients. Any real client with portfolio losses can therefore
have their accounts flattered by this process. This cycling cannot continue indefinitely and so
the investment firm itself ends up picking up the cost. As it is ultimately expensive, there must
be a strong incentive for the investment firm to pursue this activity on behalf of their clients.

Table 1.2 Current FRC cases under accountancy and audit schemes (as of July 2018)

Case Investigation type Announced

KPMG LLP – Carillion plc Audit Enforcement Procedure 19-Mar-18

and Accountancy Scheme 29-Jan-18
Case Investigation type Announced

Deloitte LLP – Mitie Group plc Audit Enforcement Procedure 20-Nov-17

and Accountancy Scheme 31-Jul-17
PricewaterhouseCoopers LLP’s Audit Enforcement Procedure 29-Jun-17
audit of BT Group plc
KPMG Audit plc’s audit of Audit Enforcement Procedure 04-May-17
Rolls-Royce Group
Sports Direct International plc Accountancy Scheme and Audit 28-Nov-18
Enforcement Procedure
KPMG LLP – Carillion plc Audit Enforcement Procedure 19-Mar-18
and Accountancy Scheme 29-Jan-18
Mitie Group plc Audit Enforcement Procedure 20-Nov-17
and Accountancy Scheme 31-Jul-17
Preparation and audit of the Audit Enforcement Procedure 25-Jul-17
financial statements of and Accountancy Scheme 27-Feb-17
Redcentric plc
Sports Direct International plc Audit Enforcement Procedure 28-Nov-16
and Accountancy Scheme 05-Dec-16
Equity Syndicate Management Accountancy Scheme 10-Aug-17
Limited (Accountancy 07-Sep-16
Scheme) 05-Mar-12
Coats Group plc Accountancy and Actuarial 01-Aug-17
Scheme 28-Jul-16
BHS Limited and the audit by Accountancy Scheme 27-Jun-16
PricewaterhouseCoopers LLP 11-Jun-18
Serco Group and the audit by Accountancy Scheme 08-Jun-16
Deloitte LLP
KPMG Audit plc and Ted Baker Accountancy Scheme 06-Jun-16
plc
Globo plc and the audit by Accountancy Scheme 21-Dec-15
Grant Thornton UK LLP
Quindell plc Accountancy Scheme 23-Jan-18
05-Aug-15
KPMG Audit plc in connection Accountancy Scheme 23-Jun-15
with BNY Mellon
AssetCo plc and the audit by Accountancy Scheme 24-Apr-17
Grant Thornton UK LLP 25-Jan-17
12-Aug-14
Tesco plc Accountancy Scheme 05-Jun-17​
31-Aug-16
22-Dec-14
The Co-operative Bank plc and Accountancy Scheme 28-Oct-16
the audit by KPMG Audit plc 20-Jan-14
Autonomy plc Accountancy Scheme 31-May-18
11-Feb-13
RSM Tenon and the audit by Accountancy Scheme 16-Aug-17
PricewaterhouseCoopers LLP 14-Dec-16
13-Aug-12
Tanfield Group and the audit by Accountancy Scheme 11-Jun-14
Baker Tilly UK Audit LLP
SIG plc and Deloitte Audit Enforcement Procedure 28-Jun-18
Sanctions against RSM Tenon Accountancy Scheme 21-Jun-18
Conviviality plc and KPMG Audit Enforcement Procedure 03-Jul-18
8 About this book
The team behind this series
Professor Krish Bhaskar6 is the principal author of this book. He has pub-
lished more than 50 books and many refereed articles. He has also worked
in the IT, consulting, investment banking, automotive and forecasting sec-
tors. He has experience of running companies, preparing reports and
auditing7 – though mainly computer auditing, as it used to be called.
Krish has been aided and abetted by Professor John Flower, whose
major role is as an auditor and researcher into multinational financial
reporting. John would probably classify himself as left of centre and lean-
ing towards anti-capitalism and environmentalism. He has published
scholarly critiques of the profession, including Global Financial Report-
ing, with Dr Gabi Ebbers, Palgrave, 2002, and two more radical books,
Accounting and Distributive Justice (2010) and The Social Function of Accounts:
Reforming Accountancy to Serve Mankind (2017). He has undertaken sub-
stantial research on financial reporting and standard setting. He also intro-
duced modern auditing methods for the Common Agricultural Policy8
and undertook a number of innovative techniques in auditing what was
and is massive-scale mega audits.9
Rod Sellers, OBE,10 FCA,11 has spent almost 50 years in senior finan-
cial and corporate roles in industry. Rod has given his time, written mate-
rial, and given his views relentlessly, unstintingly and without complaint.
But he does not want to be regarded as an author – just a contributor. He
is deemed part of the auditing establishment (as he sat on the advisory
board of one of the Big Four accounting/auditing/consulting firms) and
was financial director and then chief executive of an FTSE 25012 com-
pany. For the last 20 years, he has been a portfolio NED/chairman with
a dozen companies – from private family businesses to PIE entities. His
role has often included serving on audit committees and working closely
with the financial departments. He defends the accounting and auditing
profession and, although he realizes the impact of disruption, he does not
believe that very much has gone wrong or usually requires anything more
than evolutionary change. However, in terms of solutions and scenarios to
correct problems facing the audit market, he appreciates that something
more radical might be appropriate. He also believes that, in most cases,
management is honest and trustworthy. His motivation to be involved in
this series of books is to make sure his viewpoint and that of the profes-
sion is taken into account. Rod came to many of the interviews and col-
lected considerable amounts of written evidence (emails, etc.).
All three of us have extensive and varied experience in the accounting
profession. Two of us are broadly pro-Big Four in some shape or form
and one of us is against. All three of us have experience both from the
 About this book 9
reporting viewpoint and audit experience. One of us has had a lifetime
career in industry with preparer experience including audit committees
and shareholders. But we all agree that the current disputes between the
FRC, the users of reports, the government and the Big Four has to lead to
re-evaluated audit experience, not least because of the gap between what
the public expects and what the auditors actually currently deliver. This
expectations gap is currently widening and unstable, especially after the
plethora of failures in 2018. In addition, the rate of increase of financial
failures from 2017 onwards seems to be accelerating. Recent improve-
ments to financial reporting and auditing seem not to be working.
However, although we share a common view of what the problem is,
we do not all share the same opinion of what has caused the problem, or
the best way to address it.

• John Flower, despite his extensive audit experience, is negative

towards the role of auditors, financial reporting and current account-
ing rules. John is disillusioned with the public interest notion of
auditing and wants radical change.
• Rod Sellers believes that in general the preparers of financial reports
do so honestly and fairly. He believes that the available published
evidence tends to concentrate on the frauds and scandals, thereby
negating much of the good work which is undertaken between a
company’s financial team and its auditors out of the public eye. But
he recognizes that change is coming and may be necessary.
• Krish Bhaskar takes the middle ground and keeps a balanced view.
However, he is aware that in a situation like Tesco, for example, there
is high motivation for senior management to manipulate financial
reports, however slightly, to their advantage, for financial gain (salary,
bonuses and share options, etc.) or face-saving reasons.

There are also many other contributors to this book: managers, board
members and practitioners with the Big Four who prefer to remain anon-
ymous but who have provided significant input. In the main they sup-
port the profession, but some see issues and problems within it. Some are
ardent critics of the growing UK approach to audits via checklists rather
than intuition and a profound in-depth knowledge about the entity being
audited. Their input amounts to hundreds of hours of partner time, hun-
dreds of pages of input and thousands of emails.
We also draw on the views of a variety of groups, companies and insti-
tutions. These views range from support for the current status quo to
being critical of it or in some cases highly critical of the status quo and
ardently wishing for change. Boards and management of the FTSE and
10 About this book
larger AIM companies feel that they are under much pressure from an
ever-changing set of rules and regulations.This demonstrates our key aim:
to ensure that this book is relevant, fair and transparent.You know whose
view it is you are reading.
Included as our own text are sections written by a variety of interview-
ees including partners from the Big Four, senior auditors, accountants,
analysts, investment bankers, other professional investors, sharehold-
ers and senior and lower level managers of the FTSE 350. Many have
required anonymity so there are only a handful of attributions given.
We have not always identified quotes separately, especially if they came
from several sources, even though we may have used the actual words
from a single source. Credit should be given to those people who have
given much time and effort in providing input to this volume. We do
indeed thank them very much. Of course, as these written sources have
requested anonymity, we are not at liberty to release their names. How-
ever, many of the ideas incorporated here include input and sometimes
their actual words. Where we have incorporated ideas into our own
thinking, then we adhere to the normal observation to the effect that
the views expressed here are our own, notwithstanding the comments
of others.
Where possible we have also referenced press reports. Usually these
articles are published contemporaneously with the business failure or
event. Most importantly, where possible, we always try to provide a bal-
anced view.
Many of the comments we received have been added for balance to
reflect the many comments received from reviewers and practitioners,
some of which have been involved in the various cases we consider.
Often their response is to disagree with our conclusions in the strongest
possible terms. However, our conclusions are based on evidence and are
often reinforced by others; those references have been given.

Other books and volumes in this series

The volumes which make up the Disruptions in Financial Reporting and
Auditing series are:

1 Disruption in the Audit Market:The Future of the Big Four;

2 Financial Failures and Scandals: From Enron to Carillion;
3 Disruption in Financial Reporting;
4 Disruption in Auditing.

References to these companion volumes are made throughout this book.

 About this book 11
Websites and online material
There is a complementary companion set of material to this volume
online available at www.fin-rep.org. Some material may be updated over
time. The glossary is listed first on the website and material is then by
book title (Which Book?). There is a short glossary of the most relevant
terms at the end of this book. Online, there is also the (full) glossary,
which takes longer to look through but has more than 400 terms. As there
are so many abbreviations, you may find it useful to keep the glossary
open whilst reading this book. On mobile devices, just enlarge by zoom-
ing. This companion site can be accessed via www.fin-rep.org.
The reader can access the two glossaries on the home page and will
be provided with options as to where to go for which book. Instructions
are on the site. This site is available as a free-of-charge companion site to
this book. There are details of how to obtain passwords (if implemented).
Each book has its own space. Updates and new analyses may be provided.
A blog may be added at a later date. Each book in this series has its own
space on the site. Access to each book’s area is restricted to purchasers of
that book. Multiple access by several users for one book is not permit-
ted unless licensed. The rule is one book = one right to access. This is
enforced through software. The Big Four and PIEs can purchase multiple
access licenses. Instructions are again on the site. Use by research students
using university library copies may be allowed. However, it is expected
that the library will purchase multiple copies of each volume.
Many of the references in the text are also available online on www.fin-
rep.org.The references are given as links to a specific URL. Press Control
and left click simultaneously on your mouse or equivalent on the link and
you will be taken directly to the reference if it still exists. Note that some
links and URLs require fees or provide limited access (e.g. The Times and
the FT). There is also an adjacent site at www.fin-rep.com, which has
additional relevant information, updates and new research results. Feed-
back from researchers, regulators, the government, the Big Four, other
audit firms, professional investors and the preparers of reports will be
posted here. Multiple user licenses can be arranged.
Although the title of the book mentions Enron to Carillion.The book
and its online appendices deals with later cases such as Conviviality, SIG,
Patisserie Valerie and so on.

Notes
1 Marriage, M., 2019, UK accounting watchdog to be replaced by stronger regula-
tor, Financial Times, 11 March 2019. Available at: https://www.ft.com/content/
d6580162-4416-11e9-b168-96a37d002cd3 Accessed March 2019.
12 About this book
2 FTSE 350. The top 350 companies listed on the FTSE, the Financial Times
Stock Exchange 350 index – that is the top 350 companies by market capitalisa-
tion. Most of these are classified by as Public Interest Entities which means they
have the highest level of reporting and external audit requirements. The FTSE
100 is the top 100 listed companies. The FTSE 250 is the 101st to the 350th top
listed company.
3 Beattie, V., Fearnley, S., and Hines, A., 2011, Reaching Key Financial Reporting
Decisions – How Directors and Auditors Interact, John Wiley & Sons. Available at:
www.wiley.com/en-us/Reaching+Key+Financial+Reporting+Decisions%3A+How+
Directors+and+Auditors+Interact-p-9780470748749 Accessed July 2018, or
available at: www.amazon.co.uk/Reaching-Key-Financial-Reporting-Decisions-
ebook/dp/B005HF3OBK/ref=sr_1_1?ie=UTF8&qid=1528106773&sr=8-
1&keywords=Key+Financial+Reporting+decisions Accessed July 2018.
4 Institute of Chartered Accountants for England and Wales (ICAEW), considered
the most prestigious of the accounting bodies, and the organization that usually
entitles an accountant to audit (in England and Wales). There are Scottish and
Irish equivalents.
5 Marriage, M., 2018, ‘Probe Urged into Break-Up of Big Four Accountants: UK
Financial Reporting Council Wants Inquiry into Case for Creating Audit-Only
Firms’, Financial Times, 16 March. Available at: www.ft.com/content/911e8184-
283d-11e8-b27e-cc62a39d57a0 Accessed July 2018.
6 Brother of philosopher Roy Bhaskar, now deceased and previously leader of the
realist movement (the Realist Theory of Science, amongst others).
7 Although he has no formal accounting qualification, he has been an examiner,
written books for the ICAEW and CIMA and undertaken and supervised audits
for those with ICAEW and ACCA qualifications, and undertaken national and
country audits; in addition he has helped one of the Big Five with certain aspects
of FTSE 100 audits, and undertaken numerous assurance reviews for investment
banks. He also taught auditing and computer auditing as part of continual profes-
sional development programmes for qualified ACAs and others, nationally and
internationally. He has a close association with US and French universities and
runs two boutique consulting companies.
8 From 1981 to 1991. In the early days of the Common Market, agricultural spend-
ing absorbed 80% of the budget. It is now a significantly lower share, as the EU
has developed other budget lines, but still accounts for 38% of the EU budget of
155 billion euros as of 2016.
9 Ibid.
10 UK Royal Honour: Officer of the Most Excellent Order of the British Empire.
11 Fellow of the ICAEW, rather than just ACA, of which he is a chartered accountant.
12 The Financial Times Stock Exchange 250 Index, also called the FTSE 250 Index.
FTSE 250 is a capitalization-weighted index consisting of the 101st to the 350th
largest companies listed on the London Stock Exchange. Rod describes it as a
share index of mid-sized companies (after the top 100) listed on the London
Stock Exchange by market capitalization.
2 Regulation, regulators
and reporting

Accounting, reporting and auditing – not an exact

science
Accounting and its rules are not an exact science. These two quotations
epitomize the issue:1

• “How do you explain to an intelligent public that it is possible for

two companies in the same industry to follow entirely different
accounting principles and both get a true and fair audit report?”
• “Every company in the country is fiddling its profits.”

This conundrum is referred to as the expectation gap. Identified by Porter

in 19932 (and others), it refers to the gap between expectation and actual
performance. This can be divided into deficient performance, deficient
standards (together making a performance gap) and unreasonable expec-
tations. Expectations, reasonable or otherwise, continually change. They
only grow, not diminish. Auditors and standard setters consistently lag
behind.
We know that accounting and the preparation of financial reports is
like portraying dynamic n-dimensions into static two-dimensions – many
interpretations and tricks are possible. Originally the financial reports
consisted of:

1 The balance sheet, a snapshot of the business at a specific date;

2 An income statement or profit and loss account measured over a
period of time and the cash flow statement;3
3 Various notes to these statements and accounting policies.

Not so now. It has been expanded with various additional reports and
narrative reporting (sometimes referred to as the strategic report and
14 Regulation, regulators and reporting
director’s report) and various non-financial information (NFI) and
reports.

Flexibility and judgement – leads to misstatements?

There is flexibility and judgement. Rules can be written but to distil
real-life transactions and events into a set of figures can never be exact –
especially when some events are estimated such as how much of the money
owed can actually be collected. There is the concept of what is material.
Two companies with exactly the same performance and underlying reality
might report very different results using the same set of basic accounting
principles and standards.4 Differing estimates about the probabilities and
events requiring exercise of ‘judgement’ will always cause this. What is still
surprising to many observers is that the auditors will say that the two dif-
ferent sets of accounts can provide a true and fair view of the company.5
Note it is “[a] true and fair view”(as several commentators said to us):

There is no such thing as “the” true and fair view. There is always a
range of views.

Materiality
You will find that the concept of materiality comes up in our case studies.
According to Wikipedia,

The concept of materiality is applied by the auditor both in planning

and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any,
on the financial statements and in forming the opinion in the audi-
tor’s report.6

Basically, if the amount being questioned is less than this numerical mate-
rial amount, then the auditors can ignore that issue.
In the US, the Securities and Exchange Commission (SEC) defines
what is material by using a numerical value. This is currently 5% of pre-
tax profits, though this cannot be a hard and fast rule. If pre-tax profits
are, say, £20 billion in one year, then fall back to £1 million the next year,
and then return to £20 billion the year after, defining what is material as
5% of the £1 million figure is clearly misleading. So, the value of what
may be material has to be assessed with regards to the overall nature of
the company and its business, and also taking a longer-term view. Often
the definition of a material value is included in the annual report under a
section usually called ‘Materiality’.
 Regulation, regulators and reporting 15
Forward-looking statements
There is an increasing focus on NFI and a growing requirement to pro-
vide forward-looking information, including a forecast view of the busi-
ness and the answers to additional ‘what if ’ questions. ‘Going concern’
examines the survivability of the company over the next 12 months.
‘Viability’ looks forward several years. However, there is now interest in
not just an opinion about the future but also numerical forecast numbers.
A recent survey by KPMG, the 2016 Survey of Business Reporting,
reported that 25% of the companies included (270 companies across 16
countries) provide short-term forecasts in their annual reports.7

Not just an annual report

Reporting today has an annual report, various documents for the state
and for tax computations, half-yearly reports and often quarterly reports
(compulsory in the US). Added to that are the various presentations and
information given to analysts and shareholders. These are usually found
or mentioned on the company’s website under investor relations sections.
As well as giving an overview of the company, such websites will have
key company announcements, news articles, press briefings and so on.
There may be predictions by analysts or an average of the investment
analysts forecasts or buy/sell recommendations (usually only if positive,
though). Also, if necessary, any profit warnings are given. See Box 2.1.

Box 2.1 Additional information found typically

under ‘investor relations’

For example, on BT’s website at www.btplc.com/

Sharesandperformance/Presentations/index.htm,
you will find the following headings and information:

Results Watch webcasts and download press releases,

slides, KPIs and transcripts. Latest consensus
is also available.
Key company Key company announcements such as BT
announcements Pension Scheme agreements, the EE
acquisition and BT sport rights auctions.
Regular ‘teach-in’ In depth teach-in events on topics such as
events cost transformation, pension, regulation,
network and technology.
16 Regulation, regulators and reporting

Presentations Analyst presentations from around BT, with

from the lines updates on products and strategy.
of businesses
SRI events Presentations for socially responsible
investors, including the purposeful business
programme.
Capital market Slides and videos from capital markets days.
days
Notes: Socially responsible investing (SRI), or social investment, also known
as sustainable, socially conscious, ‘green’ or ethical investing, is any investment
strategy which seeks to consider both financial return and social good to bring
about a social change.
Purposeful business is less well known as a concept but according to BT it means
“putting customers first; connecting people; working for the environment; sup-
porting good causes; we’ve got big ambitions to be a more sustainable business”.

True and fair concept versus fair, balanced and understandable

We know that there may be many true and fair views of the financial
statements from the identical underlying physical operations and transac-
tions. The requirement to present a true and fair view in financial state-
ments is enshrined in EU, UK and US law. The concept of true and fair
is where directors must consider whether the financial statements that
they approve are appropriate. The external auditors are legally obliged,
under the Companies Act 2006, to state, when giving their opinion on
a company’s financial statements, whether the accounts, in their opinion,
give a true and fair view.
Since 2014, there is a requirement for an extended front half of the
annual report with a greater narrative section. The new test is fair, bal-
anced and understandable (FBU). Only the financial statements part of
the annual report is independently assured by external auditors. Direc-
tors are obliged, under the UK Corporate Governance Code, to ensure
that the entire report is FBU, but there is no obligation to obtain assur-
ance over this – auditors do not have to carry out any additional work
in this regard but must merely consider whether the non-financial part
of the annual report is consistent with the knowledge they have gained
in the course of the audit. Our evidence suggests that narrative sections
often suffer from widespread lack of balance and tone, and sometimes
misdirection.
 Regulation, regulators and reporting 17
The increasing importance of the UK’s Financial Reporting
Council (FRC)
The FRC has a role both as a standard setter and enforcer. Some think
that this creates an inherent conflict of interest in that it is ‘marking its
own work’. The FRC has introduced a number of changes, including the
strategic report having a description of the business model, and a narrative
section in the front half of UK reports.The FRC only has to prove breach
of a rule on the part of the external auditors. However, the FRC’s regula-
tory powers do not extend to company executives who are not account-
ants. So, it has a somewhat asymmetric role in sanctions over misconduct
or inappropriate behaviour as shown in Box 2.2.

Box 2.2­  FRC’s Asymmetric Sanctions

FRC sanctions on external auditor

Persons Firm, engagement partner normally
but could extend to other auditors
or accountants on the audit (with
recognized qualifications).
Test Breach of FRC or regulatory rules.
Sanctions for firm £10 million fine plus other actions.
Sanctions for Fines and possible ban from working as an
individual accountant.

FRC sanctions on company or organization

Persons with recognized qualification
We will call this type of person a preparer
accountant.
A person without a recognized accounting
qualification, if on the board, we will call
a director-preparer. If not on the board, it
is unlikely for any action to be taken other
than for fraud by the Serious Fraud
Office (SFO).
Test Misconduct, which is a stricter test than
breach of rule.
18 Regulation, regulators and reporting

Sanctions for firm No sanction against firm. Passed to FCA or,

for criminal fraud, the SFO.
Sanctions for Fines and bans from working as auditor or
individual accountant.

So, in the case of a preparer accountant (a qualified accountant in the

firm preparing the reports, usually a financial director or CFO), the FRC
has to prove behaviour amounting to misconduct rather than breach of a
rule. However, the FRC has no right to sanctions over other members of
the board, e.g. director-preparers who are not qualified accountants. This
is asymmetric as the FRC has much greater control over the auditors than
the preparers.
Recent and possible initiatives from the FRC include:

Recent:
• Strong encouragement of ‘clear and concise’ reporting;
• A new governance and stewardship code8 and usually periodic
updates or guidance notes;
• Expansion of this code to private companies;9
• New routine reports on materiality and auditing; often under the
headings of guidance, policy or thematic review;10
• New fines and penalties (now up to £10 million, though this may be
raised again);
• Involvement in the senior appointments of the Big Six.

Possible (from reviews into the FRC):

• Possible break-up of the Big Four into split of separate audit-only
and consultancy firms;
• Stronger penalties and sanctions over management and the preparers
of reports;
• New audit rules. Now partly the responsibility of the Brydon Report.
The new ARGA which replaces the FRC and should have stronger pow-
ers and teeth. But not all the powers we wanted.The Kingman Review
did water down some of ours and others more stringent requests.18

However, it has not all been plain sailing for the FRC. In 2017 it came
under criticism for closing the investigation into Tesco and its auditor,
PwC.The FRC said there was “not a realistic prospect”11 a tribunal would
find PwC guilty of misconduct at Tesco. This is their standard language
for saying they could not publicly fault PwC.
 Regulation, regulators and reporting 19
FRC: post-HBOS and Carillion
In September 2017, the FRC cleared KPMG, the auditor of HBOS (Hal-
ifax and Bank of Scotland), of misconduct in relation to its work with
the lender in 2007 and 2008. The FRC said the audit of HBOS’s 2007
results “did not fall significantly short of the standards reasonably to be
expected” and that its assessment of the bank’s health in 2008 “was not
unreasonable at the time”.17 The FRC’s decision prompted concern over
accountability for the downfall of the bank (and in general all banks),
which was forced into a rescue by Lloyds Banking Group in 2008.
Nicky Morgan, chair of the Parliament’s treasury Select Committee
(SC), sent a letter arguing that accountants should be subject to tougher
rules, more like those imposed on auditors “to protect the public inter-
est”.18 FRC ex-chief executive Stephen Haddrill responded by saying
that the ability of the FRC to investigate audits and bring auditors to
book had been hampered by the prevailing UK law, which had set the bar
of the misconduct test unattainably high. But with the EU Audit Regula-
tion and Directive (ARD) implemented in 2016 and enshrined in UK
law, the threshold had been lowered and the regulator would be able to
make relevant enforcement. This also meant that more potentially defi-
cient audits would be investigated, prosecuted and ultimately sanctioned.
In so doing, fines were increased to in excess of £5 million and now to
£10 million.
A £10 million fine was levied on PwC but reduced to £6.5 million on
settlement, with a 15-year ban for one partner plus a fine of £325,000 for
that individual. In 2017 there were two further large fines. PwC was fined
£6 million, reduced to £5.1 million on settlement following an investiga-
tion into the 2011 accounts of RSM Tenon, which collapsed in 2013. One
of PwC’s partners was fined £114,750 and PwC had to pay £500,000 in
costs in 2017. This fine came after PwC was fined £5 million earlier in
2017 over its audit of Connaught in the period running up to the social
housing group’s collapse in 2010. Bottom line, dismiss the numbers, but
none of these sanctions were large enough to have much real effect and
reports of them were confined to the specialist financial press or financial
pages of the national press in the main.The ones that still stand out include
the collapse of HBOS and the more recent 2018 cases; although, in our
interviews, the impact seems to be much greater in terms of peer group
pressures and status (i.e. promotions) within the audit firm.
The FRC has often been criticized for being too close to the Big Four.
Of the 30 board and senior FRC positions identified in Accountancy in
December 2017 (page 13), 15, or 50%, are from the Big Four (including
one from Arthur Andersen, one of the Big Five firms before the Enron
scandal), and two were from mid-level firms.
20 Regulation, regulators and reporting
It has also been criticized for being too slow and ineffective. The FRC
admitted that it should have been faster to investigate why KPMG gave
HBOS’s accounts the green light just seven months before the bank had
to be rescued by Lloyds during the GFC. Instead, the FRC closed its
investigation into the audit, saying it had found that KPMG’s work for
HBOS “did not fall significantly short of the standards reasonably to be
expected”, notwithstanding that criticisms have been made elsewhere
that this was a biased board and the suspicion is that this may have been a
biased decision. The FRC then admitted:

We should have adopted a more proactive approach to our early

enquiry in relation to HBOS rather than a heavy reliance on other
regulators.13

The FRC came under heavy criticism by the joint Select Committee
(SC)12 and MPs for being slow and “far too passive” in its scrutiny of the
financial practices of collapsed outsourcer Carillion. MPs on two high-
profile parliamentary committees concluded in their report that they had
“little faith in the ability of the FRC to complete important investiga-
tions in a timely manner”.14

The roles of the regulators

Box 2.3 lists the main regulatory bodies in the UK.

Box 2.3 Relevant watchdogs

FRC – Financial Reporting Council. Probably the best known

of the watchdogs for annual reports, reporting and auditing.
It regulates auditors, accountants and actuaries, not directors
(unless they are qualified accountants). Concerned with the
listings of companies on the stock exchanges or equivalent
and false market values and areas that might affect market
capitalization and share value, corporate governance and
reporting, including monitoring and reviewing the actions
of the auditors.
FCA – Financial Conduct Authority. Regulates listed companies
and markets; more concerned with the conduct and actions
of the board of directors.
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of Kaksitoista
kuukautta
This ebook is for the use of anyone anywhere in the United States
and most other parts of the world at no cost and with almost no
restrictions whatsoever. You may copy it, give it away or re-use it
under the terms of the Project Gutenberg License included with this
ebook or online at www.gutenberg.org. If you are not located in the
United States, you will have to check the laws of the country where
you are located before using this eBook.

Title: Kaksitoista kuukautta

Author: Ellen Wester

Release date: September 10, 2023 [eBook #71606]

Language: Finnish

Original publication: Helsinki: Emil Vainio, 1908

Credits: Tuula Temonen

*** START OF THE PROJECT GUTENBERG EBOOK

KAKSITOISTA KUUKAUTTA ***
KAKSITOISTA KUUKAUTTA

Kirj.

Ellen Wester

Suomennos

Helsingissä, Emil Vainio, 1908.

Etsin avarasta maailmasta ystävää, joka tahtoisi minua kuulla, kun

kerron miksi tulin tähän suureen kaupunkiin ja kuinka langat elämäni
kankaassa punoutuivat yhteen täällä.

Tammikuu.

Huoneeni ikkunasta näen pitkän kadun.

 Kapeana ja tummana jatkuu se kauas äärettömyyteen. Iltasin
säteilee valoa rivissä olevista heikoista kaasuliekeistä pitkältä
eteenpäin, ja lähimmän ristikadun kulmassa olevaa
viheriänharmaata taloa vastaan näen kiirehtiviä haamuja vilahtavan
sivu. — Useimmiten kiiruhtavat ne arvatenkin kotiinsa, lämpöön ja
valoon; toisinaan kävelevät he vitkaan. Minä tuumin silloin lienevätkö
ne kaksi rakastunutta, jotka eivät huomaa pakkasta, vai raukkoja,
joilla ei kotona ole sen lämpimämpää kuin kadullakaan.

Kuukauden olen ollut tässä suuressa kaupungissa. Täytyyhän sitä

jossakin olla. Olen yksin — isä ja äiti ovat menneet tuntemattomaan
maailmaan. Ainoa veljeni on ottanut itselleen vaimon eikä tarvitse
minua lietensä ääressä eikä maailmassa.

En ole nuori — kohta kolmenkymmenen vuotias, enkä ole kaunis.

Minussa ei ole koskaan ollut tarpeeksi tarmoa hommatakseni
itselleni niin kutsuttua elämän päämäärää, joka kyllä olisi tärkeä ja
tarpeellinen itselleni, mutta yhdentekevä kaikille muille. Taloudellinen
asemani on sellainen, ettei minun ole pakko tehdä ansiotyötä. Tulin
suurkaupunkiin nähdäkseni voisiko siellä elää paremmin elämänsä
loppuun. — Minulle oli sanottu, että naisilla siellä olisi niinkutsutuita
harrastuksia.

Asun pienen, hienon mummon luona, jolla on päivänpaisteinen

luonne. Hänellä onkin reseedakukkia ikkunoilla ja vaaleat verhot
Vanhoja mahonkipuisia huonekaluja peittämässä. Vanhanpuoleinen
hän on, hiukan ränstynyt, voidakseen enää muuttua — se johtuu
ijästä mutta hyväsydäminen. Me vietämme hiljaista elämää,
kumpikin hoitaen omia asioitaan.

Hiljaisuuteen olen tottunut — koko elämäni olen viettänyt

pienimmässä, unohtuneimmassa pikkukaupungissa, ja asianhaarat
ovat sen tehneet että nuoruusilo tansseineen, juhlineen ja
perhosleikkeineen pojan ja tytön, nuorukaisen ja neidon kesken, on
jäänyt kauaksi minusta.

Siitä asti kun tänne tulin, on ilma kylmennyt kylmenemistään. Jää

ei muodosta vain hienoja kirjauksia raitiovaunujen ja etehisien
ikkunoihin, vaan vankkoja lehtiä ja oksia korkokuvien tapaan. Minä
kaipaan skoonelaista sumuani, joka hiipii kaikkialle nurkkiin ja
soppiin: tahtoisin kuulla raskaitten pisaroin tippumista tai nähdä niitä
tihein helmeilevin rivein puitten alastomina oksilla.

Tuntuu niin tyhjältä ja ikävältä, eikä ainoastaan tyhjältä rakkaitten

vanhusten jälkeen, jotka ovat lepoon menneet.

Yksinäisyys ja vapaus kodin velvollisuuksista ja toimista on

herättänyt tarpeen, joka ennen on ollut syrjäytetty. Minä vaadin, minä
vaadin itselleni jonkun, jota voisin rakastaa ja joka minua rakastaisi.
Tämä on kaiketi sitä, jota jokapäiväisessä puheessa kutsutaan
naimahaluksi ja joka tehdään pilkanalaiseksi.

»Jumala, anna minulle kärsivällisyyden ihana lahja», rukoilin minä

ensi iltana tänne tultuani, kun seisoin ikkunani ääressä ja katselin
alas kadun sumuisen himmeään äärettömyyteen, ja ajattelin, että
aivan tuon näköisenä oli tulevaisuus edessäni. »Jumala, anna
minulle kärsivällisyyden ihana lahja.»

Helmikuu.
 Huoneessani riippuu rokokoopeili, kullatussa, kaareilevassa
kehyksessä, ja peilin alla kullatulla hyllyllä seisoo pieni porsliininen
pari, puuteroittuine irtonaishiuksineen ja rintaröyhelyksineen. Heillä
on sirosti teeskentelevä ryhti — tyttö ottaa povestaan kirjeen ja
ojentaa sitä pojalle ja tämä kumartaa, käsi sydämellään, ja näyttää
vakuuttavan pettämätöntä jumaloimistansa kylliksen ihanuudelle ja
sulolle. Tuo pieni, huolettomasti hymyilevä pari johtaa ajatukset
menneisiin aikoihin jolloin ihmiset — niin kuvittelemille — kulkivat
tanssien elämänsä läpi.

Oliko se kevytmielisyyden vai filosofisen uskalluksen huippu, joka

loi rokokoon hymyilyt ja eriskummaiset koristeet?

Minä haluan heittää luotani kaikki mietiskelyt ja selitysten

etsimiset, tahdon kuin keveästi heittää yltäni talvitamineet: ne
painavat harteita ja käyristävät selän. Niin tekee myöskin mietiskelyn
viitta.

Maailmassa on talvi. Koskahan tulee uusi kevät päivänpaisteineen

lämmittämään nuoria taimia? Tai uusi kesä kultaisille
paratiisiomenoineen, joita ei ole kielletty syömästä?

»Minä uskon Herraamme, mutta hän ei tee enää mitään

ihmetöitä», sanoo emäntäni. Siihen päätelmään on hänen
elämänfilosofiansa kiteytynyt.

Uskon minäkin Herraamme, mutta tahtoisin lisäksi uskoa, että hän

vielä joskus tekisi ihmetyön. Yhden ainoan pienen ihmetyön
ilahuttaakseen köyhää sieluparkaa!

Sinä päivänä en enää mietiskellyt, vaan lähdin etsimään ystäviä ja

sukulaisia.
 Toinen ystävättäristäni on naimisissa, on varakas ja onnellinen,
tavallisen onnellisuuskäsitteen mukaan. Hänen miehensä on
virkamies. Ollen toimessaan koko aamupäivän on hän parhaimmissa
tapauksissa kotosalla jonakuna iltana, muulloin vain päivällistä
syödessään — niin, ja öisin ja tietysti sunnuntaisin! Hänellä on
sitäpaitsi pieni tyttö, joka on terve ja reipas. Mitä ihminen enempää
pyytää voi?

Tapaahan sitä näin onnellista perhe-elämää joka päivä ja joka

kadulla.
Mitä varten siis ihmetöitä? Tulee olla tyytyväinen.

Toinen ystävättäreni on naimaton, niinkuin minä. Mutta hänen

täytyy tehdä työtä elatuksensa takia ja olla iloinen, niinkauan kuin
tämä työ tuottaa hänelle jokapäiväisen leivän ja viisikymmenisen
säästöön vuodessa. Ja kun hän ei voi enää työskennellä? Kuinka
sitten käy? En tiedä. En tiedä mihin vanhat naimattomat naiset
joutuvat. Sanomalehdissä näkee heidän kuolonilmoituksiaan, mutta
missä olivat he eläissään. Olen varma siitä, että me kaikki olemme
tunteneet jonkun vanhan, työstä kuluneen naisen, joka niin tyyten on
maailman silmistä kadonnut, että kuolemanilmoitus vaan herättää
ajatuksen: »Kas, vieläkö hän eli?» Ja sitten kadutaan lyhyellä ja
nopeasti haihtuvalla katumuksella, ettei olla mitään hänen
hyväkseen tehty, tuon huonosilmäisen, kumaraisen vanhan naisen.

Etsin siis ystäviä ja sukulaisia.

Alapuolella olevassa huoneustossa soitettiin tottumattomin,

harjoittelevin sormin Punaista sarafaania, tuota vanhaa kulunutta,
äärettömän surumielistä säveltä. Se sopi minulle, joka yksinäisenä ja
hämilläni odottelin oven avautumista.
 Herrasväki oli kotona ja minut vietiin saliin. Se oli suuri ja siinä oli
uusia huonekaluja, jotka näyttivät käyttämättömiltä. Kauniin,
valkohapsisen ukon kuva, puettuna vuosisadan alkupuolella
käytettyyn pukuun — tunsin hänet hyvin, olihan hän meidän yhteinen
isoisämme — antoi huonolle arvokkuutta.

Kului kotvanen, ennenkuin kukaan tuli, ja minulla oli hyvää aikaa

ihmetellä, mitä minulla siellä oikeastaan oli tekemistä. Olikohan
tarpeellista, että tunkeuduin perheeseen sentähden, että meillä oli
yhteinen isoisän isä? Nyt olisi heidän pakko teeskennellä minua
kohtaan harrastusta, jota he tietenkään eivät voineet tuntea, ja
vastavuoroksi olisi heillä oikeus kysellä minulta aikeitani, ja
arvostella niitä pois lähdettyäni. Sitten he ehkä katsoisivat
velvollisuudekseen kutsua minut useimmin kotiinsa; tai jolleivät sitä
tekisi, tuntisin minä katkeruutta mielessäni.

Talon rouva tuli, rakastettavana ja armollisena, täsmälleen

parahultasen kylmänä. Ettei hänellä ollut aavistustakaan minusta ja
hommistani, sen soin hänelle anteeksi; vaikkapa hän olikin
naimisissa isäni serkun kanssa.

Hänen miehensä herätti minussa suurempaa harrastusta; häntä

pidetään lahjakkaana ja hän on noussut korkeaan asemaan. Minua
huvitti koettaa keksiä, oliko hän todellakin älykkäämpi kuin useat
muut, vai oliko sattuma tyrkännyt hänet ylöspäin. Mitä ihmiset
sanovat, siitä vähin välitän.

Pidän suurimpana, eittämättömänä oikeutenani, huolimatta siitä,

miten yleinen mielipide arvostelee henkilöitä ja asioita, itse tutkia ja
tuomita, niinkuin parhaaksi näen. Kuitenkin oikeutta noudattamalla ja
jos suinkin mahdollista, pakottamatta käsityskantaani muille. —
Tämä viimeksimainittu on vaikeata.
 Maaliskuu.

Olen nyt tottunut elämääni täällä; tunnen joka kukan huoneeni

seinäpaperissa, ja verkkokalvooni on näköala huoneestani painunut
niin, että saatan nähdä sen, kun ummistan silmäni — pitkän, julman
pitkän kadun, joka päättyy usvanharmaaseen etäisyyteen, ja lähinnä
minua poikkikatu ja siinä vanha harmaanvihreä talo oikealla, sama,
jonka ohi kiirehtivät varjot hiipivät iltaisin; ja vasemmalla unohduksiin
jäänyt puutalo, ikkuna päädyssä. Samoin kuin minun ikkunani,
avautuu sekin pieneen ahtaaseen tarhaan päin, jossa valkeat
sireenit kukkivat juhannuksen aikaan, sanoo emäntäni jolla on lupa
käydä siellä.

Minä lueskelen ja mietin ja koetan olla joksikin huviksi niille

muutamille ihmisille, joiden kanssa tulen tekemisiin.

Ensiksi emännälleni ja hänen ystävättärilleen, kolmelle vanhalle

naiselle, jotka ovat vähän kuuroja, vähän kankeita jäseniltään ja
kovin kursailevaisia. Kerran viikossa tulevat he whistiä pelaamaan ja
toisinaan olen minäkin mukana pääasiassa sentähden, jotta en
kangistuisi liian suureen itsekkyyteen ja etten kokonaan unohtaisi
kodin pieniä itsensä uhrautumista kysyviä velvollisuuksia.

Mutta olen myöskin ollut suurilla, uudenaikaisilla päivällisillä

muiden ystävätärteni luona.

Siellä oli naisia silkissä ja hepenissä, herroja kunniamerkeissä, ja

tunnustettu kaunotar, joka piti hovia ja oli seuran keskipisteenä.

Ennen oli minulla tapana uneksia olevani kohteliaiden miesten

kunnioituksen esineenä nyt en sitä enää tee. Pöytäkumppanini
osoittikin aivan selvästi, ettei minulla ollut mitään siinä suhteessa
odotettavissa. Hän puhui niin vähän kuin suinkin ja kiinnitti
huomionsa muuten ahkerasti ruokaan.

Toisella puolella istui nuori lääkäri, joka ei myöskään puhunut

monta sanaa kanssani. Mutta minä pidin hänen ulkomuodostaan,
hänen leveästä kaarevasta otsastaan ja terävistä ilottomista
silmistään. Ja kun hän puhui pöytänaisensa kanssa, oli hänen
kielensä niin hienosti sivistynyttä, lausetapansa niin täsmällistä, että
se ilahutti herkkää korvaani. Herkkää sentähden, että olen enemmän
lukenut kuin kuullut puhuttavan.

Vielä herätti eräs henkilö pöydässä harrastustani: vanha tyttö, joka

aivan hiljattain oli mennyt naimisiin korkean virkamiehen kanssa.
Tämä oli punakka, kömpelö, saamaton ja puheli vaan virka-
asioistaan: vaimo näytti kalpealta, lempeältä ja älykkäältä ja
katseessa oli jotain odotuksen tapaista.

Minua huvittaa nähdä hänet toiste ja silloin tarkata, onko hänen

toivonsa pettynyt vai täyttynyt.

Kotimatkalla tulin jutelleeksi pöytänaapurini, lääkärin kanssa.

Tulimme yhtaikaa portaita alas ja meillä oli sama matka, joten hän ei
voinut olla sanomatta jotakin.

Ilmassa oli kevään aavistus, vaikkakin muureilla, kivillä ja pensailla

kimalteli miljoonittain säteileviä pieniä kuurakristalleja, ja me
kävelimme hitaasti eteenpäin yhdessä, sillä hän asui kumma kyllä
ikkunani alla olevan kadun varrella.

Puhuimme hänen tieteestään ja hän arveli, että yksi ainoa

eittämättömästi toteennäytetty tosiasia voitti kymmenet nerokkaasti
keksityt, mutta todistamattomasti tehdyt hypoteesit. Hänen
mielipiteensä ovat ehkä oikeat, mutta siitä huolimatta uskalsin
mainita Michel Servet'in, jonka nero arvasi yhden elintoiminnan
salaisuuksista. Ehkäpä se johtui turhamaisuudesta, että ilmaisin
hänelle tietoni Servet'istä, mutta siinä tapauksessa sain kyllä
rangaistukseni, kun seuralaiseni antoi asiallisen ja käytännöllisen
vastauksensa:

»Eihän häntä oikeastaan voida lukea lääkäreihin.»

Kuinka tämä kuului kuivalta!

Hetkistä ennen olisi minulla ollut tuhansia sanoja valmiina, nyt en

keksinyt muuta kuin tämän:

»Mutta hän oli älykäs ja onneton.»

»Täytyykö olla onneton, jotta saisi teidän myötätuntonne

osaksensa?» vastasi hän, ja niin olimme portillani.

Kun laskin ikkunaverhoni alas, välähti pääni läpi ajatus, että nyt
tunnen ainakin yhden, jonka jokapäiväinen tie käypi pitkää, pimeätä
katua pitkin.

Huhtikuu.

Muistelen usein etelämpänä olevaa kotiani, joka sijaitsee

ylenevällä merenrannalla.
 Kaukana maalla on multa jo ammoin peittänyt keltaisen sannan,
metsää kasvaa sen päällä tai peittyy se saraheinän sinivihreäin
korsien alle. Mutta kumpujen ylenevät ja alenevat piirteet panevat
aavistamaan, että aallot ennen vanhaan ovat täällä vyöryneet.
Näkinkengän kuoret ja kanervan alla löytyvät hienoksi murentunut
santa todistaa, että meri on muodostanut niin matalat harjut kuin
liikkuvat särkätkin ulkona rannikolla sekä veden partaalla olevat
uurteiset kohokkeet, jossa märkien levien alle kätkeytyy eläviä
mereneläviä ja täyttyneitä simpukoita.

Kuvittelen, että tämä on sitä, mitä ylipäänsä nimitetään

kehityskuluksi.

Minä ajattelen ja uneksin aikojen merta. Se lainehtii ja liikkuu

alituiseen: se on kirkas, mutta kumminkin läpinäkymätön, sillä
mikään ihmisellinen silmä ei ole sen syvyyttä mitannut. Mutta niin
kauvan kuin se on aaltoillut, on se kohottanut pinnalle ja mukanaan
pyöritellyt elämän atoomeja, äärettömän pieniä olijoita, joista toisia
nimitetään ihmisiksi. Nousuveden pitkä aalto nostaa heidät
olemassaolon rannalle, ja he pysähtyvät siihen ja edistävät
voimansa ja tahtonsa tomuhiukkasilla sitä rakennustyötä joka aina
on käynnissä.

Silloin tällöin on varmaan löytynyt joku suurempi luja keskuspiste,

jonka ympärille tartuntavoiman lait heidät on koonnut. Toisinaan ovat
he myöskin jääneet siihen, mihin ovat pysähtyneet vaan sentähden,
ettei heissä ole ollut kylliksi tarmoa vyöryä eteenpäin. Siis kiinteät
kummut, rajamerkit suvun historiassa, ovat näin muodostuneet;
niitten santajyvästen mielestä, jotka vasta ovat rannalle
huuhtoutuneet, tuntuvat kumpujen rivit ylitsenäkemättömiltä.
 Etäämpänä kasvaa suuria, kuihtuneita puita, elottomia sankareita
ajatusten maailmassa, ja toisia, jotka vain ylimmässä latvassaan
säilyttävät vihertävää oksaa — ajatusta, joka on elänyt halki aikojen,
lähempänä rantaa näkyy kutistuneita, ryhmyisiä runkoja, joiden
kasvua myrskyn vihurit ovat estäneet, ja joiden latvat ovat
kehittyneet yksipuolisesti, niin että ne kaikki viittovat samaan
suuntaan; mutta monilla lähempänä olevilla kummuilla ei idä mitään
muuta, kuin kuivaa rantaolkea ja teräviä korsia.

Kaikilla on kuitenkin samainen alkulähde: pienten santajyvästen

väsymätön työ on luonut ja muodostanut ne kaikki.

Mitä varten ja miksi tätä väsymätöntä työtä vuosituhansien halki?

Taivaaseen asti eivät santajyväset vielä ole päässeet, mutta ne
haluavat varmaankin nousta sinne asti.

Mitä hyödyttää mietiskely? Mitä varten ja miksi? Koskaan en

päässyt pitemmälle.

Ajatuksiltani väsyneenä menin kuukauden viimeisenä päivänä alas

puutarhaan.

Ilma oli lauha ja maa oli niin kostea, että vesi pursui esiin siitä,
mihin jalka vaan tallasi. Pensaitten silmikot paisuivat suurina;
sopessa pilkisteli krookuspäitä esiin, ja nurkassa, minne
etelänaurinko paistoi, kukkivat lumipisarat vihertävän valkeina ja
täyteläisinä.

Olin poiminut niitä ja aijoin jälleen palata sisälle, kun ikkuna

lähelläni avautui ja tervehtivä ääni lausui:
 »Hyvää iltaa, neiti, teittepä viisaasti, kun tulitte hengittämään
vähän kevätilmaa ahkeran päivätyönne jälkeen.»

Käännyin; siinä oli nuori lääkäri, naapurini ystävättäreni

päivällisiltä. Hän asui siis tuossa unohtuneessa puutalossa, ja hänen
ikkunansa avautui puutarhaan päin. Yhdellä ainoalla askeleella olisi
hän voinut astua ikkunalaudan ylitse ulos.

Kun hän nyt puhutteli minua, tunsin hämmästyksen ohessa

kiitollisuutta, että hän oli viitsinyt huomata minut. Koko pitkän päivän
olin istunut ikkunani ääressä ommellen ja tuumiskellen ja joku oli siis
huomannut minut, oli arvellut, mitä siinä tein ja ehkäpä mitä
ajattelinkin. En osannut mitään vastata, mutta astuin nopeasti pari
askelta ja laskin lumipisareeni hänen ikkunalaudalleen.

»Ovatko nämä kaikki minulle?» kysyi hän, ja äänessä oli

hämmästynyt sointu. »Tuhannet kiitokset. Saanko tulla ulos
tarkastamaan valtakuntaanne?»

Ja ennenkuin ennätin muuta kuin vilahdukselta katsoa häneen

huoneseensa, oli hän hypännyt ulos ja seisoi vierelläni. Näin vaan,
että kaikkialla oli kirjoja, kaikilla pöydillä ja tuoleilla.

»Kuinka paljon teillä on kirjoja!» sanoin minä.

»Niin», vastasi hän. »Ne ovat nyt kerta kaikkiaan minun

intohimoni!
Mutta se on kallista — olen varmaankin maksanut enemmän, kuin
olisi
pitänyt tyydyttääkseni sitä! Jonakin päivänä saan varmaankin katua!
Intohimoistaan saa aina maksaa!»
 Hänen katseensa oli vakava, vaikkakin hän hymyili. Hetkisen
kuluttua jatkoi hän:

»Mitä kiirettä teillä on tänään ollut?»

»Ei mitään», ääntelin minä ja punastuin. — Kuinka olisin voinut

kertoa, että neuloin koruompelua veljenityttären hameeseen? Eikö
se hänestä tuntuisi mitättömältä työltä?

»Ei mitään! — Kuinka naisellinen vastaus», sanoi hän, kohottaen

olkapäitään.

Jos hän vielä olisi kysynyt, niin olisi hän mielellään saanut tietää,
mitä olin ommellut ja mitä sen ohella olin ajatellut, mutta hän alkoikin
puhua puutarhasta, keväästä ja ilmasta ja sitten elämästäni.

»Teillä on varmaankin ikävä?» sanoi hän, mutta silloin minä vain

hymyilin. —

Ikävä! Olinhan elänyt niitten runoilijoitten mukana, joiden teoksia

olin lukenut. Sellaisessa seurassa ei ole ikävätä. — Olin kaipaillut
sielua, joka olisi omani: mutta yksinäisyyttäni ja sydämeni surua
kuvaamaan olivat sanat liian pieniä ja köyhiä.

Hämärä laskeusi harmaana harsona talojen välille, kun erosimme,

ja hän lausui toivomuksenaan, että useimmin kohtaisimme
toisemme. Oliko se vaan lauseparsi? Korviini ei se siltä tuntunut.

Nyt tiedän, kenen lamppu se on, joka palaa niin myöhään illalla.
Katu ei enää ole tyhjä ja autio — mutta pimeys tuolla puolen
valonsäteen on niin musta.
 Toukokuu.

Suloinen keväinen kuukausi on takanani; olen saanut puhua ja

olen kuullut eläviä sanoja.

Sen jälkeen, kun tapasimme toisemme puutarhassa, iltana, jolloin

lumipisareet kukkivat, olemme kohdanneet useasti toisemme —
tuskin saatan sanoa, kuinka usein, sillä olen mennyt sinne, kun tiesin
hänen siellä olevan.

Joka päivä en sinne mennyt. Vanhat tarut naisellisuuden

velvoituksista pidättivät minua toisinaan, ja usein esti menoani
epäilys viehättämiskyvystäni. Sellaisina iltoina laskin ikkunaverhot
alas ja sytytin lampun, lukeakseni sanoja, joilla ei ollut mitään
merkitystä minulle. Taikka seisoin kätkössä ikkunani luona
odottamassa, avautuisiko vastapäinen ikkuna ja joku katsoisi, enkö
minä jo tulisi. Aina se ei tapahtunut, mutta kun niin kävi, ilostuin kuin
olisin saanut lahjan, jonka ehkä olin toivonut saavani, mutta jota
minulla ei ollut oikeutta odottaa.

Usein olemme kuitenkin tavanneet ja ennättäneet puhella

monenmoisista, jotta nyt katson häntä ystäväkseni — ja
enemmäksikin.

Hän ajattelee selvästi ja terävästi, mutta kylmästi ja hänellä on

kova kohta sydämessään, skeptisismin aiheuttama jäätynyt paikka,
joka synnyttää kylmyyttä ja epäilyä. — Hän lukee, lukee aina; ei
saadakseen tietää, vaan unohtaakseen, tuntuu minusta toisinaan. —
Mitä voi hänellä olla unohtamista? Nuoruuden hullutuksiako? Ei, hän
tuntuu eläneen yksin, lukujenpa hommissa vaan. Jonakuna päivänä
saan tietää, mikä häntä painostaa; toisinaan tuntuu, kuin pyörisi se
hänen huulillaan. Silloin vaikenee hän pitkiksi ajoiksi ja kävelee
edestakaisin käytävällä, siksi kunnes aijon kysyä, mitä se on — enkä
ymmärrä, miks'en kuitenkaan tee sitä.

Se tekee minut kumminkin vähän levottomaksi, vai lieneekö siihen

syynä kevään kuohuva, kuumentava ilma?

Ostin eilen kokonaisen maljakon kalpeita primuloita. — Voipiko

löytyä parempaa, kuin sellainen kukkaisaarre on? En halua niitä
yksitellen, säästeliäissä ja niukoissa annoksissa, kuin pohjolan
kesäpäiviä. — Ei, en huoli ollenkaan tai sitten tahdon tuhlaavan
yltäkylläisesti yhtaikaa. — Kuihtukoot ne sitten ja jääkööt
korvaamattomiksi.

»Onnellisempaa on, kun voi tyytyä vähempään», vastasi hän, kun

mainitsin jotain tähän suuntaan, laskiessani maljakon hänen
ikkunallensa.

Olin silloin juuri heittänyt luotani kevään levottomuuden ja vastasin

hänelle ylimielisen iloisesti. —

»Niinpä niin, onhan viisaampaa jakaa kultaa annoksittain, kun

kerran varasto on niin pieni; mutta tahdonpa kerran maljakon täyteen
primuloita ne kuihtuvat, sen kyllä tiedän — mutta minä olen ne
omistanut ja jääköön niiden tuoksu elämäni suloisimmaksi
tuoksuksi.»

»On parempi tyytyä vähempään», toisti hän ja katsoi minuun, ei,

vaan ohitseni, kulmat kurtussa ja katse synkkänä.

Sitä katsetta minä en siedä; se nostaa muurin välillemme, se

painaa minut mitättömäksi. Sillä vaikka hetkistä ennen olen tuntenut
olevani lähellä häntä, niin kutistuu sydämeni silloin tuskaisesti sen
edessä, jota en tunne, ja kevätilta muuttuu kylmäksi ja pimeäksi,
siksi kunnes hän jälleen pehmiää ja puhuu.

Mutta kun me sinä iltana erosimme — kun tähdet harvakseen

taivaalla tuikkivat ja kostea maa tuoksui — sanoi hän hiljaa — ilta oli
niin juhlallisen kaunis, että me koko viime hetken olimme puhelleet
hiljaisin äänin:

»Kiitos, että tulette tänne alas; te olette hyvä», ja sitten suuteli hän
kättäni, jota omassaan piteli.

Ja kun pääsin huoneeseeni, täytyi minun hetkisen itkeä, osaksi

ilosta, osaksi säälistä omaa itseäni kohtaan, kun saatoin uskoa, että
hänen suutelonsa tarkoitti muuta kuin hyvän miehen kunnioittavaa
kiitollisuutta naisen ystävällisyydestä.

Primulat tuoksuivat; tähdet tuikkivat ja välkkyivät rauhattomina, uni

ei ollut koskaan tulla.

Kesäkuu

On riemuitsevan ihanaa kesäisessä kuussa, kun sireenit tuoksuvat

ja ilma on lauha ja aurinko viipyy viipymistään eikä halua sammua ja
uinua.

On riemuitsevan ihanaa, kun koko maailma on laskeutunut

usvaisten, loistavien pilvien joukkoon, niin että vain pieni kolkka
maastamme kohoaa siitä esiin — jos vaan löytyy kaksi ihmistä, jotka
pitävät toisistaan niin täysin, etteivät välitä menneisyyden