June 22, 2018

Accounting News Roundup: Bad Press for KPMG and Revolving Doors | 04.14.17


Bad press for KPMG

Last month we noted how PwC had become the Big 4 firm of ridicule and abuse after a series of bad publicity. We all knew that one day another firm would take PwC’s place on the dunk tank and, yes, as you might’ve guessed, that firm is KPMG.

And it was confirmed by this finger wagging editorial that appears in today’s New York Times:

The reputation of KPMG, one of the Big Four accounting firms, took another hit this week, when it fired five partners, including the head of its audit practice in the United States, for “unethical behavior.” The firings come on top of existing questions about the firm’s policies and practices: KPMG has for years been the auditor of scandal-scarred Wells Fargo and was the longtime auditor of problem-plagued FIFA, the world soccer governing body. Year after year, KPMG auditors saw no evil in either company.

The latest breach deepens doubts about KPMG and, in the process, raises fundamental questions about the integrity of all public-company audits.

There’s nothing particularly remarkable about the NYT editorial other than it appears in the NYT. Auditors mostly fly below the radar and even when they are heavily scrutinized, it’s still pretty rare for it to be elevated to the editorial page in our country’s paper of record. But even if you think the New York Times editorial page is a bunch of liberal snowflakes, the damage to the firm’s brand will be severe. If the firm improves its performance on its next PCAOB inspection report, for example, lots of people, rightly or wrongly, will assume the firm cheated.

Now, is that worse than PwC’s stuation vis-à-vis the Oscars debacle? I guess that depends on whether you prefer your accounting firm to be thought of as dishonest or incompetent.

Revolving doors

Here’s a Financial Times column by Brooke Masters that wants something done about the revolving door between auditors and the PCAOB:

[T]he [KPMG/PCAOB] episode highlights the troubling side of Washington’s revolving door. While the US has long been comfortable with watchdogs and industry lawyers changing places, the auditing profession has a particular problem.

The Big Four are so dominant that today’s regulator is not just a potential future industry peer, but literally tomorrow’s co-worker or boss. Stricter conflict of interest rules and longer cooling off periods should be required.

I’m not so sure. A former PCAOB employee got information from a current PCAOB employee. Most people don’t leave a regulator for the private sector so they can help their new firm cheat the system. Most people leave regulators for the private sector so they can make a lot more money. This former-PCAOB-now-former-KPMG employee is now unemployed for being brazenly unethical and isn’t making any money at all. No revolving door rules would’ve prevented that. Likewise, the PCAOB leaker is now unemployed and probably won’t be working for a Big 4 firm any time soon.

KPMG, and other the major audit firms, don’t want to hire cheaters. They want to hire competent, scrupulous and honest PCAOB inspectors so they can have people on hand who understand the regulator’s complicated rules and shifting expectations. A lot of PCAOB inspectors want to make more money and get out from under the thumb of a new SEC that might be more hostile towards their activities. Any rules that would make it more difficult doesn’t benefit the firms or the PCAOB inspectors that want to work for them. It may, however, insure that audit firms continue to fumble around trying to lower their PCAOB inspection deficiency rates by any means necessary.

Brought to you by Accountingfly

Brad Hughes of Beech Valley wrote about freelance CPAs traveling the world. Also, Accountingfly’s featured job of the week is for an experienced Staff Auditor in Portland, Ore.

Previously, on Going Concern…

After a week full of KPMG stuff, we took a breather. ICYMI on Wednesday: Adrienne wrote about a BDO auditor who spied on his co-workers for the FBI. And Greg Kyte covered hot assets in his Exposure Drafts cartoon.

In other news:

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Image: Russell James Smith/Wikimedia Commons

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SHOCKER: Number of Fraud Cases in the Courts is High

In probably the most shocking news of the day, KPMG’s “fraud barometer” reports that the number of fraud cases in UK courts in the first six months of the year are the highest since the firm started issuing the report, 21 years ago.
Here in the states, the big sexy fraud gets all the attention but there is plenty of small fraud to go around. Plus, the bright side is, we’ve haven’t seen anything yet:

“These figures are bad, but the worst is yet to come,” Hitesh Patel, a partner at KPMG, said. “It will be a number of years before the impact of the recession fully feeds through into the fraud statistics.”

So our advice would be for any of you that are nervous about layoffs, look into getting transferred to the forensic accounting practice. You won’t be out of work any time soon.
Record total of fraud cases in court – and worse to come [FT.com]

Promotion Watch: KPMG

Forgive us for being a little behind on this, we’re still twisting arms out there:
On July 15th, the Radio Station announced the promotion of 874 new Senior Managers and Managers. This compares to 1,228 that got the bump last year.
Some might say that there were less people up for promotion this year, hence the drop. Others might say “that’s because I got the axe and now live on government cheese”.
Click on the image below for a full-size view of the announcement (please note the crookedness as a sign of authenticity). Anyway, congrats to all the new taskmasters managers at KPMG!