Why the Big 4 Deserve Blame And Don’t Deserve TARP (Especially PwC)

I’ve had some interesting comments to my posts about the awarding of TARP work to EY and PwC and my post yesterday on why the Big 4 deserve some blame for the “financial crisis.” 

“I knew you had nothing. Nothing whatsoever, to back up your claims. 

“How does an audit firm like PwC, one that’s really not a player, a dominant financial services industry expert in the past”

They are the 3rd or 4th largest auditor of financial services IN THE WORLD! And they are “not a player”.

This post is a joke, right? Please tell me it is a joke, and the real post is coming soon. “

“So PwC, as the 3rd largest auditor of the financial services sector in the world, is “not a player”? Using your logic, Toyota is not a player in the auto manufacturing business. Coors is “not a player” in the US beer market. Apple is “not a player” in the computer industry.

Could you please explain to me, since I can be dense occasionally, how 3rd largest in the world, with 20% market share, is “not a major player”?

“FM: Being # 3 or # 4 in a four horse race is not really being in the race in my opinion, especially given the level of specialized knowledge that auditing the financial services industry requires. We all know that no one but the Big 4, for the most part, audits these global financial services firms.”

Commenter: That was the most ridiculous statement you have ever put into this blog. I have a feeling there are 32480329480234 firms out there that would LOVE to have PwC’s market share, but maybe I am wrong. I doubt it, though. FM, you have really been trashing PwC lately and for no apparent reason. Something tells me that you had a favorite in the race to get the TARP work and when PwC won it rather than Deloitte or KPMG, you got angry and decided to bash PwC and the selection process. IMO, if PwC’s market share is smaller than the rest of these firms, they have less of an opportunity to be biased. Also, KPMG, Deloitte, and E&Y all lost more clients than PwC during the “financial crisis”, and PwC ended up picking up more clients than the rest. You say this makes them a bad candidate, I say this may possibly mean, they are better than their competition.

I made a comment on Richard Murphy’s blog yesterday to respond to someone there that was flapping his lips, similarly apologizing for the Big 4’s malpractice in not issuing ‘more going concern” opinions.
My comment this morning in response the latest criticism on this blog is below.  Take a look at the rest of the comments when you have a chance.  They’re insightful regarding how the apologists for the Big 4 make their arguments. Weakly. Anonymously.

Francine McKenna: Sometimes I wonder if those that make comments do so only to disagree with me rather than to enter into a dialogue. At times it seems they really don’t read the posts or their context or my comments. When the majority of the commenters, both positive and negative, are anonymous, I have a distinct advantage. I have more credibility by virtue of the fact am wiling to stand behind my opinions and my proposals. Those of you who choose to remain anonymous, and the firms who do not provide names or data, do not. 

Let me address a couple of the statements in these two comments, again.

My contention is that PwC, in particular, given their historic smaller market share of the financial industry audit clients compared to the rest of the Big 4, most likely did not and still do not have the numbers or expertise in as large a number or in the depth and breadth as needed for the new bigger and more risky audits. In addition, they did not prove themselves up to the job with the clients they did have, namely Northern Rock, Freddie Mac, and AIG, in my opinion.

If they now suddenly have more than enough, in numbers and expertise, to meet the needs of all of the bigger, more risky, and more complex clients, let’s see it. They did not reach a bigger share of FS assets audited now because they were chosen to be the best, but because JPM and B of A bought other firms. They inherited it and I question whether they are up to the job yet or ever could be.

I do not feel I am “trashing” PwC disproportionately in this case. The title of the post is why “the Big 4” are to blame for the crisis and in the post about TARP, I mentioned the faults of both PwC and EY. Frankly, there is no Big 4 firm that would have been without conflict. I have no favored firm, to say the least. The TARP contract award process has no transparency and the Treasury has no monitoring process to insure that conflicts are identified and independence is maintained. None are without doubt in terms of necessary expertise. As 7:13 said, PwC got the additional FS assets to audit because firms audited by EY, KPMG and Deloitte “suddenly” failed. Not a good advertisement for them either.

In the end, it is hard to feel reassured that TARP, or any other audits by any of the firms, in particular PwC, is in good hands when the information about who is working on TARP, for example, is redacted and partners don’t sign audit reports. Let’s see the names. Let’s check their bios, education, licenses and certifications, client history, and their history with law enforcement and regulatory agencies.

If PwC or EY wants to show they have the best folks in the business on the job, then show their faces. And if anyone else wants to continue to disagree with my contention about any of the firms’ expertise or PwC’s level of staffing and expertise in FS, let them provide their data, with the firm’s or their name on it.

Unless or until this happens, I stick to my opinions.

14 replies
  1. Content
    Content says:

    I find it interesting that you feel comfortable in saying that PwC does not possess the required expertise to evaluate banks while at the same time, some of the alrgest banks in the world, specifically those that have best weathered the financial crisis (JPM, BoA, Goldman Sachs), feel completely comfortable taking the exact opposite stance. There is the “data” you are looking for.

  2. Anonymous
    Anonymous says:

    Francine, thanks for your insight. The comments people have made show why companies go to Big 4 when they don’t always have to. We assume that because they are the BIG 4, they can do anything, but in specific niches I have no doubt that other firms can measure up to them. Folks just need to understand that although PwC is the biggest fish in the pond, it doesn’t seem to be the most qualified to audit financial services…and that is OK! Every firm can’t be specialized in everything – it’s probably not economically feasible.

    (I personally noticed how high KPMG ranked there, even though they are the 2nd class citizen of the big four….lol)

  3. Anonymous
    Anonymous says:

    I am still unclear as to how your willingness to openly post your opinion makes it any more correct. The burden of proof in on you when you make claims such as you have here. I think its admirable of you to openly blog in your own name, but I think that the ferocity and number of comments in disagreement with you on this topic make up for their anonymity. Additionally, to call out your own active readers and claim that their opinion is invalid until they post their name is wrong on many levels… Not the least of which is that many of us are not in your position as a Partner in our firm. We do not have the same freedom that you do.

    Secondly, I think that your seemingly stubborn refusal to admit that any of these counter arguments are valid is reminiscent of the Big 4 partners that you so frequently call out for this type of behavior.

    I think that several anonymous posters have made very valid points.


  4. Francine McKenna
    Francine McKenna says:


    I think, overall, I have acknowledged valid and interesting comments and have corrected mine where data and facts that I can validate prove I have made a mistake.

    The reason I have more credibility is that anonymous commenters may or may not know what they are talking about or have any factual basis for their points. We can’t judge.

    The disadvantage I have is that I have to use publicly available information and that which comes to me voluntarily to make my points. Any commenters from inside the firms do not. So I can’t really debate them unless they or the firms are willing to publicly disclose the info they are using. It’s like the debate I had a while back with someone who was taking exception with how I analyzed Deloitte’s results. No point in going any further if their side of the argument is not public information or if what the firm does disclose publicly contradicts with their argument.

    In the end, all of you who may disagree with me or think I am doing the firms a disservice with my opinions and analysis should encourage your firms to respond officially or to be more complete and transparent in their disclosures. Then we’re on a level playing field.

    As long as the commenter is anonymous and their basis for argument is unavailable to the public, I will always stand by my own opinions until proven otherwise.

    Read or not.
    Agree or not.
    Your choice.

  5. Sean in DC
    Sean in DC says:

    1. So you want the names of people who are going to be adding internal control structure and auditing some of the largest payments ever made by the US gov? You want the names of people who will be deciding what banks get helped and which ones dont? You want the names of people that can influence BILLIONS of dollars in payments to different entities, which could result in the loss/gain of millions for investors? Transparency is very important, but the safety of employees is as well. You are over stepping your boundaries saying that all of these names should be out for the world to see. Have we learned nothing the past 10-20 years about to what extent people will go to to make money?

    2. You are wrong, the TARP contract award does have a independnce monitoring system in place. Just because you have not had it explained to you, means nothing.

    3. You preach Freddie and AIG with talking about PwC, and you talk about INDY and lehmen for E&Y. But you refuse to mention the thousands of successful audits and services these companies have performed.

    4. You keep saying that you dont have a preference, but then rag on the companies picked. They selected these firms to the best of their abilities. Every firm has the possibility of running into independence issues. It is what it is.

  6. sean in dc
    sean in dc says:


    Stop trashing your readers for not giving their names. Most of your readers are most likely in my shoes: Mid to late 20s, working for a Big 4 or close(BP, Grant, Booz). You know very well that partners/management research Big4 blogs all the time and for anyone to mention their name when promoting their firm or competition or bashing their firm or competition is not exactly a good career move. So be happy, that they are reading your blog and commenting.

  7. Francine McKenna
    Francine McKenna says:

    @sean in dc

    I completely understand the concern with putting a name on comments. That’s why I accept anon comments and entertain discussions with those that contribute to a dialogue.

    But when it comes to data, it’s my choice and my judgment whether to accept it based on where the info is coming from. If I don’t know whether it’s a partner or a 24 year old senior auditor or where geographically the info is coming from, that’s a difficult judgment to make. But that doesn’t stop you or your firm from providing data or correcting any error I may have made with actual data that I can verify.

    There have been hundreds of professionals of all ages who have called me, emailed me and met with me, using their real names, because they wanted to discuss an issue with me, or provide more information. I never post anyone’s comments without their permission and I have never betrayed anyone’s confidence because they have identified themselves to me. I don’t report info on the blog that I get from somewhere else unless I have a name.

    I have made this offer many times, made my email, my phone number and myself available. Deloitte is the only firm where a PR person has sought to provide information, correct information, and add information to my stories. Any of the other firms are welcome to do the same.

    So, if you want to have a discussion, want to help me see your point better, want to provide data that may persuade me, you are very welcome to do that one-on-one.


  8. Francine McKenna
    Francine McKenna says:


    1) How about just the partners as a start? So we can see if they’re problem children and check their credentials. After all, they are working for us, the taxpayers.

    2)Is there an independence monitoring function managed by an independent government entity? How come it’s not been publicized? How come it’s not known? It would behoove everyone to know if this really exists.

    And I’m not talking about PwC or EY’s internal function. We all know how ineffective those are in the Big 4. See post today about Deloitte and independence violation by EY recently sanctioned and prior. PwC still operating under a consent decree for their violations. Maybe you didn’t see that I actually audited the Independence Office at PwC?

    3) When we’re talking about FS, it’s the failures that count. Maybe you didn’t know we have a financial crisis because of these catastrophic FS failures, the failures that occurred on the Big 4’s watch?

    4)I repeat. No BIg 4 would be without issues and conflicts when it comes to TARP. I have said in prior posts and comments what type of approach I think they should have taken. I’m not repeating it here. If you think I am tougher on any one firm, maybe take a look at the Deloitte insider trading post today and the comments. What goes around comes around and it’s always the turn of one of the firms in the Big 4.

  9. Anonymous
    Anonymous says:

    Fran, I acknowledge your points but do not share your concern. (Or at least not to the same extent.)

    First of all, the award of the TARP work to EY and PwC was done under the auspices of the language in the final legislation. To the extent you want more transparency, blame Congress not SecTreas. Also note that the Dept. of Defense spends $400 billion annually, often with no more (if not actually much less) transparency. This is no different from similar Federal government contract awards (in terms of process) and so I would ask you to keep that benchmark in mind when offering criticism.

    Second, the reported award value of the initial PwC task order under the GSA Blanket Purchase Agreement (BPA) was less than $200.000. As you know, at Big 4 billing rates it’s difficult to blow one’s nose for less than $100,000. How many hours does $200,000 buy? I’m guessing about 500 – 1,000 hours, depending on the discounts from PwC’s GSA Schedule that the parties agreed upon. Given that, how much bench strength does PwC need to find? Sure, the contract value will grow over time as new Task Orders are awarded, but time ie exactly what the firms need in order to find the folks you (and others) will expect them to field on this project.

  10. Francine McKenna
    Francine McKenna says:


    On the transparency issue, I would expect more given the high visibility of this issue. Even if the legislation didn’t spell it out, I can’t believe that this is an expedited government contract. I’m surprised tht it was a no RFP. A Blanket Purchase order was awarded. An RFQ was put out and the process for how the selection took place is not readily discernable. It’s not just the accounting related contracts that are being questioned. That just happened to be my interest. Others have highlighted the overall lack of transparency on the legal and banking related contracts for TARP including having significant portions of the contracts, including rates, redacted. So fortunately I won’t have to make the case alone. There are others who are interested in vendors beyond audit firms who will.

    With regard to the amount of the initial work orders, we both know that this BPO is a blank check under the circumstances. Fortunately for the US taxpayer, there are now a lot of eyes watching all of these contracts.

  11. Agreed
    Agreed says:

    I worked as a Manager in PwC's banking audit division for 3 years and i found fundamental audit and accounting errors in virtually every audit i undertook. I know things will fall through the cracks in some audits, but not big things, and not virtually all the time. At times I thought i was hallucinating given the stuff i used to see, then Francine's blog showed up. And you (you being an employee or client) can never take on PwC. They are experts in defending themselves & attacking you back and you can never win. Looks like I am not the only one who noted PwC's incompetence in performing financial services audits. I truly fear for that firm's clients.

  12. ClownCollege
    ClownCollege says:

    As the owner of the first 2 comments you posted out of the TARP story, I thought a response was warranted. I’ve posted numerous times previously questioning your opinions, several of which you’ve responded to. It looks like my comments have caught your attention, so I’ve assigned myself an alias so you can know what comments are mine going forward.

    A former colleague introduced me to “re: The Auditors” several months ago. The first few posts I read were interesting and dead-on, regarding some of the evaluation promotion issues within Big 4. Recently, here’s the problem as I see it: You started off by pointing out some bad in the Big 4, but you’ve devolved into a caricature of yourself. Now you take every Big 4 story and spin the negative in it. Sure the Big 4 have problems, but to characterize everything that they do as a negative; to take every news bit and write BAD! BAD! BAD! after it; damages your own credibility.

    – My 2nd issue is with your self-acknowledged low level of understanding of both technical GAAP, particularly FAS 157, and Sar-Box. You spent a couple years in public accounting, none auditing financial statements (?), and never performed a Sar-Box audit. These deficiencies have been reflected in many of your recent posts. It is entirely reasonable that the financial institutions currently failing would not have a going concern opinion or a material weakness in their most recent 10-Ks. Your opinion on going concern seems to be, “Look, they failed, that’s proof that there should have been a GC opinion 8 months ago.” Hindsight is 20-20. Fact is, events happened after those financial statements were issued that caused those entities to fail. At the time they were issued, there would not have been significant doubt as to their ability to continue as a GC. If you believe that a GC opinion should be attached to any company with investments that could MAYBE become worthless – well then just about every company will have one. Which would make them meaningless.

    – Material weaknesses. The simple fact that these companies reported huge losses from these investments supports the fact that there are no material weaknesses in financial reporting. They have been able to report these instruments under applicable GAAP all along. No MW’s.

    If I can make an analogy, your position is like a person who bought a big gas-guzzling SUV for $25,000 just before gas prices skyrocketed. When gas went from $2/gallon to $4.50/gallon, you tried to sell your SUV and discovered it was now only worth $12,000. Your position would argue “Kelley Blue Book must’ve been wrong when they said this SUV was worth $25K”. My position would say, “Something pretty extraordinary happened after you bought your SUV that made the value go down”. You say “audit failure”, I say “change in circumstances”. I think my position is more reasonable than yours. If you knew in February that the market for these instruments would bomb out, as you expect the Big 4 to have known then, were you warning people about it? Blogging about it? Or were you like the rest of us and unaware of the scope of the problem 8 months ago?

    – 3rd largest in the world makes you “a player” in any market. 20%+ market share makes you “a player”. This is especially true when the gap between #1 and #3 is a few percentage points. I stand by my Apple, Coors, etc. analogies, and I don’t think you’ve done an adequate job explaining your position as to why PwC is not “a player” in the FS audit market.

    – Several other commenters have echoed my thoughts on anonymity – no need to reiterate them. My arguments are made no more valid by a name or a title. Similarly, Big 4 are under no obligation to disclose their people, their titles, their credentials, etc. To ask for them is an exercise in futility. Asking people to come forward with information on PwC’s staff and expertise is asking those people to do something unethical – those people deserve a certain level of privacy.

    In short, you are wrong about going conerns, you are wrong about material weaknesses, you are wrong about FAS 157, and you have only tangentially-relevant information, from which you are drawing poor conclusions, about Big 4 expertise.

    The line for dialogue is open.

    -C College

  13. Francine McKenna
    Francine McKenna says:

    @Clown College

    Thanks for our comments and thanks for setting up an alias. That helps me address specific commenters and threads more easily. It’s the best most of you can do for Comments and I understand that. I addressed this issue in a previous comment. So I won’t again. I’ll just say that comments is not a place to have a lengthy debate. I invite you to contact me directly, anonymously if you must, and provide more info or corrections as you see fit. Or start your own blog. Or post on other forums. Lots of ways to get your word out…

    As far as anonymity with regard to engagements, no less than the Treasury Committee recommendations and the PCAOB have considered the idea of auditors signing reports in their own names. It may happen someday, but I doubt it.

    But when it comes to government contracts, I think it’s necessary especially for TARP. We can disagree, but I stand by my calls for more transparency and there are many others now doing the same, beyond the issues of the accounting services providers. It was a flawed process, in my opinion, and does not seem to be getting any better.

    With regard to the going concern and FAS 157 issues, it’s too much to discuss in comments. I am working on another post on this issue and we can start anew then. Don’t hold your breath, since as you know it’s a complex issue and I am consulting with legal scholars and others in order to inform my opinions further. But it’s coming. It’s too important not to follow up soon.

    As far as the tone of the blog, I will have to dissapoint you. The premise of the blog is to highlight why, in my opinion, the current model and business structure of the audit firms, in particular the Big 4, is no longer efficient or effective in serving shareholder or other stakeholder interests. I believe the firms, as they operate now, are broken. If I am a broken record, it’s because that’s the theme. This is not a full service, balanced forum. I wil only rarely write something positive. It may be because an individual impresses me. It may be because I am surprised and taken off guard by something one of the firms does that I think is a step in the right direction. But you can count on 99.9% of what I write being critical of the firms, their business model, their leadership and their operating philosopohy. The firms are the gift that keep on giving in that regard. I am never at a loss to have more than one thing to choose from to write about each day.

    There are plenty of other outlets for the positive information about the firms, including thier own sites and PR representatives. This blog was created to counter that limited, one-sided view which was previously the content of the majority of stories in traditional media about the firms, especially in the US.

    I’m happy with the result. Take it or leave it. There may be warm and fuzzy stories about the firms out there but you will rarely find them here. It’s just not my focus.

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