There’s quite a bit of bad news coming out of Russia about PricewaterhouseCoopers and their client Yukos. Former Yukos chief Mikhail Khodorkovsky and his business partner Platon Lebedev stand co-accused in a new trial brought by prosecutors intent on preventing their scheduled release from prison in 2011. Khodorkovsky and Lebedev have decided to target PwC in their defense.
My objective in writing this story was to handily contradict the self-serving defense to the fraud at Koss that’s being served up by Grant Thornton and supported by some commentators. But punching holes in their Swiss-cheese defense is like shooting fish in a barrel.
New US Advisory Leader, Dana McIlwain laid out the bad news: The time has come to cut. Average utilization is hovering at 69%. Cash collections are millions short. Campus recruiting for Advisory has been stopped cold. Business sucks and then there’s the 800+ BearingPoint folks to absorb. On November 11th the rank and file partners, fortified after training and coaching by HR via a webcast in the next few days, will chop 300+ professionals from PwC Advisory…
Given the pressures on costs and the longstanding ties some finance, audit, and accounting executives have with the accounting firms, it is not surprising that the weakening of the independence commitment may come from the companies themselves. What’s the downside for them? The potential for scrutiny by corporate governance experts and journalists? You can’t argue with a recession. And in the event of an accounting scandal or restatement, plaintiff’s lawyers will have an uphill battle to penetrate the impenetrable auditor liability shields and caps.
What’s lost in all of this discussion of efficiency and cost cutting?
Independence protects shareholder’s interests.
It was a great first day yesterday. I’ve been telling Matt Kelly, Editor of Compliance Week, that this year is better than ever. One profound change is the Twitter presence this year. Last year I was the only one Twittering, Matt did not yet have blogs on the Compliance Week site, and fewer people knew or cared what I was doing or why. This year, I share the front row at every presentation (and the backchannel) with several bloggers/Twitterers.
If you’ve been reading me for a while, you know that I pretty much stick to discussing the largest 4 audit/accounting firms. This is for practical reasons – keeping my sanity in dealing with so much information – and to be realistic. Put the three next tier firms in the US together and they don’t equal either the critical mass in terms of experience and infrastructure nor the client/revenue base of any one of the Big 4. They will never, either individually or collectively, be able to step up and absorb the detritus from another Big 4 firm failure, either in the US or out.
That doesn’t mean the next tier don’t serve the clients they have well. Mostly. Just means that the next tier are not ready to play in the same pitch as Ronaldo.
Not so long ago, Dennis Howlett and I went public with a bet:
Which Big 4 audit firm is the next to fail?
Dennis believes that I’m betting on PwC as next to fail. I don’t honestly remember committing to that, but I’m willing to go with it for the sake of argument. This is in spite of the fact that the other Big 4 have plenty to worry about and the next tier firms are in no way ready for prime time.
KPMG is being sued for $1bn by the liquidators of New Century, the collapsed subprime lender, in the first big case against an auditor arising from the current financial crisis. If the New Century trustee is successful, “it may embolden others to look more closely at the possibility of bringing [accounting] firms to some level of culpability for the things that happened,” that led to the credit crisis, Francine McKenna, president of McKenna Partners LLC, a corporate-governance consultancy, said in an interview in the Wall Street Journal.
No, I’m not talking about the BDO International case or the Deloitte Parmalat case, although those two are game changers too. In those cases, the audit firms may lose their ability to hide behind the “global network” model as a way to avoid liabilty for what happens to one of their satellites…What I’m talking about is a case that has been lightly publicized, except in its own world and in the local California environment. That case is Campbell v. PricewaterhouseCoopers. …the pattern and precedent, both legal and moral, that will be set will have a ripple effect throughout the accounting industry – all the firms, everywhere in the US.
There is at least one person who doesn’t have to worry about having a good job, at KPMG no less. Thomas Ray was the Chief Auditor and Director of Professional Standards for the PCAOB.
According to WebCPA:
Ray is joining KPMG as a partner in the firm’s department of professional practice in New York.
Thank you very much for maintaining a cynical tone during your feature on Mr. Welch and the new Mrs. Welch. In my mind, and it is a very personal opinion, Mr. Welch personifies everything that is wrong with US business.
The “victims” of the Bernie Madoff scandal are not taking their losses laying down. Why are so many suits suddenly being brought against the auditors of the funds that invested on behalf of their clients in the Madoff funds?
