Big 4

Preliminary Analytics | 08.05.09

DonaldTrumpHair.jpgDonald Trump Faces Bondholder Battle in Bid to Reclaim Casinos – Our advice: Don’t mess with this hair ego man. [Bloomberg]
ADP Says U.S. Companies Decreased Payrolls by 371,000 – The trend of lesser bad news continues. [Bloomberg]
Banks Get Picky In Doling Out Credit Cards – Postal workers rejoice. [WSJ]
Chinese survey finds prostitutes more trusted than officials – More bang for your buck. [The Raw Story via Naked Capitalism]

Deloitte UK CEO Does All Right For Himself

john connolly.jpgApparently Deloitte was feeling a little left out of the populist outrage because after the news that Big D UK reported shrinking revenues yesterday, today we learn out that John Connolly, Big D CEO across the pond, earned £5.22 million this past year.
Not too shabby even though that’s a little less than his earnings last year of £5.69 million, according to the London Evening Standard.
Big John should probably send some biscuits over to the Royal Bank of Scotland for the payday as RBS paid Deloitte nearly £59 million this past year, up from the £31 million in the year prior. RBS has received billions of bailout funds from the UK government, so some crazy taxpayer wrath headed in the direction of Big D would not be outside the realm of possibility.
Deloitte boss rakes in £5.2m after the bailout of RBS [London Evening Standard]

Firm Watch: Ernst & Young

ernst_young.jpgRound two of our Firm Watch this week covers everybody’s favorite resident of Times Square, Ernst & Young. We’ll get started on E&Y’s trubs with the Schein lawsuit where the firm was recently found to be marginally negligent and were ordered to pay a smidge over $10 mil as a result. NBD really, as E&Y probably spends that much money screwing up the spelling of their name on cheesy coffee cups.
The more serious stuff on E&Y, after the jump


Here’s some major stuff that probably keeps some E&Y partners awake at night:
Lehman Brothers – E&Y’s role in the collapse of Lehman Brothers has got little attention in the press, however, suits have already been filed by San Mateo County in California, the City of Long Beach, California and the Southern District of Texas. It wouldn’t be unreasonable to speculate that more suits are likely to be filed.
Madoff Exposure – E&Y also has significant Madoff exposure, as the auditor of several feeder funds. D&O Diary has them listed as defendants in at least ten different lawsuits.
Layoffs – There have lots of reports of layoffs at E&Y in the last month or so, many of which occurred in the tax practices in the Northeast, and many of those getting the axe were supposedly on visas. Real classy. This was a follow-up to layoffs that also went down in February. As if that’s not enough, there were also rumors of layoffs occurring monthly since September ’08 in the Detroit office. Plus, with lots comments about stealth layoffs at all levels, it sounds like it has been a bloodbath at E&Y.
So that seems to be the major stuff, from our view, for E&Y. Again, we want to know what we’re missing. We’re looking for tips and dirt on any of the things we discussed above and everything we didn’t mention. Email us at tips@goingconcern.com and we’ll get all your additional gripes on here.

Deloitte UK Reports Shrinking Revenues

DTa.jpgBig D’s UK revenue was down 2% to £1.93 bil for the latest fiscal year, marking the first time a Big 4 firm has reported declining revenues in six years.
Partners are still doing okay though, as they will receive £601 million. That’s an average of £883,000 per partner. Not too shabby, even though that’s down over 7%.
Leaders within the firm are expecting another rough year ahead for the economy but are still planning for “growth not contraction”. We’re not sure how that fuzzy math will work but whatevs.
Oh, and little D’s, don’t worry, you got a shout-out from John Connolly the UK CEO: “our success will continue to be the product of our exceptionally talented people being relentlessly committed to our clients, to market leading, innovative service and to an obsession with quality”.
Relentlessly committed. Obsession with quality. Sounds like they must have re-instituted the tradition of shipping the criminals lesser performers down under.
Deloitte revenue drops in `extremely tough’ market [Accountancy Age]
Deloitte’s UK revenues shrink 2% [FT.com]

Barry Salzberg’s Imaginary Advice for the President on Healthcare

Barry Salzberg.jpgWe’re not going to debate about healthcare here because after about one-tenth of a nanosecond we’d consider jumping out the window. What we would like to discuss is Barry Salzberg, CEO of Deloitte-period, giving imaginary advice to the President on how to proceed with his strategy in getting support behind his reform efforts.
Check out some real advice, after the jump
Bar lays out his advice for B to the O in classic accountant fashion, ” I would counsel more patience.” and “Measured haste, you might call it. My advice to the president would be to find that balance of urgency and patience.” Haste. Balance. VOMIT. Wouldn’t you like to see one of these stoic Big 4 CEO’s just give completely batsh!t crazy advice on something, JUST ONCE?


Like if Salz advised that Obama’s strategy should consist of hosting Lebowski Fest at the White House. Bowling, white russians, chicks in viking costumes. That’ll get the people behind your plan Bam.
Measured haste. Pfffft. Is it any wonder everyone thinks accountants are boring? Feel free to discuss your favorite Big 4 CEO and all their words of wisdom they’re constantly bestowing upon you.

Subtlety Not a Strong Suit for Some Deloitte Aussies

DTa.jpgRumor out of Deloitte down-under, where, supposedly, some associates got canned because of organizing drug deals on Big D’s premises. Details are pretty scarce but this got us thinking:
More, after the jump


1. They were probably tax associates. They’re an unassuming bunch.
2. Is the pay so bad in Australia that Big D associates are resorting to illegal means of earning supplemental income? Wouldn’t turning tricks be easier?
3. How in God’s holy name did these f’n amateurs get busted? We’re they walking around soliciting potential customers like they were at a Phish concert?
We reached out to a Deloitte spokesperson who said they won’t comment on rumors. If you hear of other extracurricular activities going on at any of the firms, shoot us the scoop at tips@goingconcern.com

KPMG Thinks the Appearance of Independence is Overrated

200px-KPMG.svg.pngThe Radio Station is throwing caution to the wind in the UK, accepting a new arrangement with Rentokil Initial, that brings out the ghosts of accounting scandals past. Under the new agreement, the firm will serve as both the external auditors and take on internal audit work, working alongside the client’s internal audit staff.
Prior to the new agreement with KPMG, Rentokil’s external auditor was PwC and internal audit services were provided by Deloitte.
Last we checked, audit textbooks still state that external auditors are to be independent in fact and appearance but KPMG UK must have got their hands on an edition that was printed in auditor bizarro world.
Rentokil’s KPMG deal raises eyebrows [FT.com]

Firm Watch: PwC

pwclogo.thumbnail.jpgThis week we’re putting together a series of posts on the six largest accounting firms to give you an idea what their latest image seems to be based on the latest news and rumors we’ve read or heard about them. At the end of the week we’ll wrap up with a completely unscientific and probably unfair ranking which you will be allowed expected to take exception with.
We’ll start with P. Dubs because they seem to have had the uncanny ability to attract bad news lately:
Get the gory details, after the jump


Satyam Fraud in India – $1b fraud, two auditors rotting in jail, Satyam throwing the Firm under the bus every chance it gets. This is the story that will definitely not go away.
Discrimination Suit in London – GBP 40 million lawsuit, including alleged sexual harassment. P. Dubs is saying the lawsuit is “without merit” but at the very least there are a number of bigots working there.
• Rumors of PwC interns working 60 hour weeks in the New York office. Might as well give them an idea of what they’re in for, right?
• Chosen to take a suicide mission contract in Somalia to monitor the incoming aid
Wage and hour lawsuits in California – Listed as defendant in three cases
Huron Consulting Restatement – P. Dubs isn’t mentioned in this debacle. YET.
Madoff exposure – listed as a defendant in over a dozen lawsuits.
As for layoffs, we haven’t heard much lately. There was a rumor that the PwC Denver office had let some associates go in the past few weeks but we don’t have any more details than that. Layoffs that have occurred in the past year at PwC we’re rumored to be of the stealth variety and not related to the recession which nobody really believes.
So, that does it for P. Dubya for now. What are we missing? Whatever office you work out of, send us the latest scoop on layoffs, performance reviews, promotions, pay raises, bonuses, juicy gossip, scandalous stories, etc. to tips@goingconcern.com and we’ll update the posts appropriately throughout the week.

UK Court Decides it Will Leave the Major Lawsuits to the Americans

Big 4 firms dodge a bullet in the UK as the highest court dismissed a negligence lawsuit against an accounting firm that failed to detect fraud that brought down a trading company. The ruling will significantly limit the firms’ liability in cases “where a determined criminal drives a company to financial ruin”.
Doesn’t make sense to us, since if you can’t make auditors accountable, who the hell is accountable? Hey, whatevs, we’re sure the Big 4 and other accounting firms won’t be celebrating long anyway, since a ruling like this won’t happen in the States, which is where the serious money gets handed over.
Auditors win ruling over Madoff-style frauds [FT.com]

Deloitte to Squash Ratings?

Following up on yesterday’s post on KPMG’s slashing of ratings, we checked with a source that gave us the lowdown on the rating system at Deloitte:
“From what I heard, all of the 4s and 5s have already been shown the door. D&T is known to suppress ratings, so I doubt that there will be a lot of 1s or even 2s this year.”
So we asked them to elaborate on “suppress ratings”:
Get the details, after the jump

Your Senior and your manager will give you a rating. Lets say that you are good and they give you a 2. They will need to justify this rating to the entire firm when they have the review meeting (I forget the exact name). Since every Senior thinks that their staff is the shit, a lot of the 2s tend to get pushed down to 3s because if everyone is performing at a higher level, then that is the average. Then, they have a limited number of 2s to fight over…2s get paid more and I think that they get some kind of performance bonus. So they have an incentive to limit the number of 2s given out every year.

Sound familiar to anyone? Discuss.
We’re smack in the middle of performance review time so email us any shady changes, adjustments, throwing people under the bus, etc. going down to tips@goingconcern.com

California Overtime Lawsuits Update

This is our initial coverage of the overtime lawsuits against some of the major accounting firms doing business in California. For those of you not up to speed, these suits were filed by non-licensed associates who believe they were misclassified under California law as exempt professionals and are due overtime and other benefits due to non-exempt employees.

The suits are all in various stages but the key case that may determine how the other cases will proceed is Campbell v. PricewaterhouseCoopers.

Campbell is currently awaiting argument before the 9th Circuit Court of Appeals. The primary issue before the court has to do with whether or not, under the professional exemption, an associate is required to be licensed by the state of California in order to qualify for exempt status. Counsel for Campbell essentially argues that only licensed or certified accountants can qualify for exempt status in California while PwC argues that uncertified accountants who can qualify as “learned professionals” are exempt employees and thus not eligible for overtime pay.


The U.S. District Court of the Eastern District of California granted summary judgment on liability in favor of Plaintiff Campbell and ruled that attest associates must have a license in order to be exempt. The court further held that they may not qualify for exempt status under the “learned professional” section of the exemption. However because the trial court felt it was a close question, it certified the matter to the 9th Circuit Court of Appeals for interlocutory appeal.

According to Bill Kershaw, of Kershaw, Cutter, Ratinoff LLP, lead counsel for the plaintiffs, the ruling in this matter could have significant repercussions for other remaining wage and overtime lawsuits. Mr. Kershaw believes that if 9th Circuit does rule in the favor of the plaintiffs, then the likelihood of the case resolving itself prior to trial would substantially increase.

If the court of appeals rules that learned professionals can be defined as exempt, PwC (and likely the other defendant accounting firms) will center their argument back in the trial court on the appeals court’s ruling that unlicensed accountants are indeed “learned professionals.”

We contacted Dave Nestor, Head of Communications for PwC in the U.S. and he provided us with the Firm’s statement:

PwC believes that its attest associates are professionals who spend the majority of their time engaged in challenging work requiring the use of their intellectual abilities, judgment and discretion. Based on these and other factors, PwC’s attest associates are properly considered exempt under applicable law, and are therefore appropriately compensated.

We’ve provided a list below of all the cases against accounting firms currently in the courts in California for your information. Check the list for your firm and please remember that it is your right to participate in any of the class action lawsuits if you meet the criteria set forth in the case. Even if you are still employed by the firm being sued, they cannot retaliate against you.
Likewise, you can participate in the case on behalf of the defendants if you are approached and choose to do so. You also have the right to not participate at all if you so choose.

If you receive any correspondence from your firm regarding the overtime and wage lawsuits, please let us know using tips@goingconcern.com. We’ll always keep you anonymous.

We’ll be covering this story as it progresses and continue to check back here for periodic updates.

List of OT Accounting Cases.pdf

Rumor of the Day: KPMG Slashing Performance Ratings

Commenter Guest @ 2:39 brought to our attention that the Radio Station is cutting performance ratings circa now. This is a little more salt in the wound after pay freezes were announced slowly leaked. If you’ve had your performance review recently and you got blindsided by a cut rating let us know. Email your tips to tips@goingconcern.com

Does The Times (UK Edition) Have a Hot Crush on PwC?

iStock_000006666248XSmall.jpgThe Times Online put out its “Top 100 Graduate Employers” list today and P. Dubya tops this list for the fifth year in a row. We congratulate P. Dubs on this momentous achievement but can’t help but wonder about such a dominating performance by a Big 4 firm.
More details, after the jump


The first thing we notice on the list is that the TOP THREE (PwC, Deloitte, KPMG) are Big 4 firms. These four came in the exact same order on last year’s list. The red-headed step child of the Big 4 is apparently E&Y who comes in at #11.
Accenture came in at #4 and Goldman Sachs sneaks in at #10 but JP Morgan, Morgan Stanley, IBM, and Google all fall outside the top 20. Other notables include McKinsey & Company at #48 and Grant Thornton at #97 (that’s eight spots behind the Transport of London, btw).
So what we’re wondering is how the Big 4 can dominate this list while in States they seem to be all over the map (highest on Fortune’s list was E&Y at #51) . Are the firms in the UK allowing employees to crush three or four pints at lunch and thus making work infinitely more tolerable?
UK readers, let us know why you’ve seemingly got it so good across the pond. As for my fellow Americans, what do you think is going on over there that we’re all missing out on? We’ve never seen The Queen in her damned undies, so maybe that’s it? Anyone done any rotations and have first hand knowledge of the awesomeness that is the Big 4 life in the UK? We’re thinking there’s got to be some reasons…
The Times Top 100 Graduate Employers [List]
Top 100 graduate employers: No 1 – PricewaterhouseCoopers [Times Online]

UAL Dumps Deloitte for Ernst & Young

DTa.jpgDeloitte has gotten dumped by UAL, the parent company of United Airlines, for E&Y. The change will be effective after D-Period finishes the 2009 fiscal year-end audit engagement. This continues the trend of heartbreak for Deloitte, who was kicked to the curb by Heelys over fees.
UAL claims that it doesn’t have any disagreements with Deloitte which we don’t really believe. They have to disagree on something. White Sox vs. Cubs fans at the very least.
More after the jump


Also, changing your auditor isn’t like changing your underwear (well, it might be hard for some). We’ve got the feeling some top brass at UAL were sick of shacking up with Deloitte. However, the article also states that UAL cited the mandatory rotation of the lead partner, “firms often choose to seek bids for audit work in anticipation of that rotation.” Okay, going out to bid to tease the other firms is one thing but actually opting for a change is quite another.
We’re guessing there’s more to this story, so if you’ve got some inside dirt on this latest break up, let us know at tips@goingconcern.com.
UAL hires E&Y to replace Deloitte as accountant [Reuters]

PwC’s New Investigation Will Invite Terrible Bovine Jokes

cattle.jpgPwC has investigators all up in their grills again as another audit is going to be subject to an investigation. This time a sub-prime lender in the UK, Cattles.
Cattles is blaming the whole shitshow on a “breakdown in internal controls”, which has been the standard PR sound bite since before Enron.

The Accountancy and Actuarial Discipline Board (AADB), which regulates the profession, announced the inquiry on Thursday.The board, part of the Financial Reporting Council, said it would examine the conduct of PwC and its individual auditors concerning the preparation of financial statements of Cattles and Welcome Financial Services, its subsidiary, for the year ended December 31 2007 and for the six months ended June 30 2008.

According to one analyst referenced in FT Alphaville, Cattles was letting loans go 240 days delinquent before taking any impairment charges. Apparently PwC was okay with that practice.
And since the AADB is going to be looking at “individual auditor conduct”, what are they going to discover? Besides the partner and manager’s daily fat-cat lunches, obv. We invite your thoughts.
We’ve also got the feeling that this might be the type of engagement where you could include a high-def photo of the manager dry-humping the partner’s leg (wearing a leash and spiked collar, natch) as part of the audit workpapers and it would get signed off on anyway. But, like we said, it’s just a feeling.
UK watchdog opens probe into PwC audit of Cattles [Reuters]
Regulator probes PwC over Cattles audit [FT.com]

Ernst & Young Found to be ‘Marginally Negligent’ in Superior Bank Case, Will Pay Plaintiff $10M

Color us surprised:

A Broward County jury on Wednesday dealt a small blow to Ernst & Young in a negligence and fraud lawsuit, deciding that the accounting giant was only marginally negligent for a local businessman’s losses in connection with the demise of Superior Bank in 2001.

UPDATE, 7:00 pm EST, E&Y Statement: We believe we should have prevailed and will seek appropriate relief from the courts.
Ernst & Young to pay $10M in Superior Bank lawsuit [Triangle Business Journal]

Big 4 Firms Will Probably Have to Cut Some Checks

Since BDO International Global Coordination was able to dodge the bullet in the Banco Espirito case, litigation against the Big 4 has been pretty quiet. Oh sure, you could bring up Schein v. E&Y but the money at stake isn’t that big and Schein is claiming Oliver Stone-type conspiracy theory so we’re hesitant to get too worked up about it.
However, if you’re craving bean counter courtroom drama it won’t be long until you’re up to your ass in Jack McCoy-types screaming about how crooked accountants are.
According to research firm, Audit Analytics, there are eight firms at risk for potential lawsuits related to King Ponzi alone along with six other potential lawsuits related to the financial clusterfuck.
Audit Analytics also was kind enough to pull together some data on who’s winning the race to pay out the most settlement. The top 50 malpractice suits against the Big 4 since 1999 break down like this, per Compliance Week:
1. E&Y – $1.92 billion
2. KPMG – $1.42 billion
3. PwC – $1.27 billion
4. Deloitte – $1.24 billion
Don’t expect the trend of the firms handing over asstons of cash to end anytime soon as settling these cases out of court seems to be best way for the firms to extend their seemingly shortening lives.

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!
kmpg_memo.gif

Center for Audit Quality Continues to Be Made Up of Firms Doing Bad Audits

Per Web CPA, the Center of Audit Quality has re-elected the four members of its governing board:

Ernst & Young chairman and CEO James Turley has been unanimously re-elected to serve a second term as chair of the governing board. Michele Hooper, co-founder of The Directors’ Council, and AICPA president and CEO Barry Melancon will extend their service as co-vice chairs. Harvard business administration professor Lynn Paine has been re-elected as a public board member.

BFD, right? Perhaps but it’s worth noting that the rest of the board is also primarily made up of representatives from large firms:

Crowe Horwath CEO Charles M. Allen, former SEC Commissioner Harvey J. Goldschmid, PricewaterhouseCoopers Chairman Robert E. Moritz (who replaced Dennis M. Nally on the CAQ board), Grant Thornton CEO Edward E. Nusbaum, Deloitte CEO Barry Salzberg, McGladrey & Pullen managing partner David R. Scudder, KPMG CEO John B. Veihmeyer (who replaced Timothy P. Flynn on the CAQ board) and BDO Seidman CEO Jack Weisbaum

In case you’re not counting, all Big 4 firms are represented along with BDO and Grant Thornton. That’s all well and dandy and I’m sure these guys could at least audit their way out of a paper bag but has it occurred to anyone that all these “representatives of the industry” work for firms that continue to have problems with AUDIT FAILURE?
The list is long of pending litigation but the firms don’t really seem to mind because they’ll claim TBTF. They have the AICPA set out this nice little group, focused on “audit quality” in order to put out press releases about the “work” they’re doing, meanwhile, audits still keep blowing up. Yeah, I guess re-electing the same people will be fine.
CAQ Governing Board Re-elected [Web CPA]

Our Speculation About the Motivation Behind Deloitte’s Most Recent Survey

heelys.jpgBig accounting firms like doing surveys. We’ve often thought about the motivation behind the constant surveys and further wonder if firms ever josh the numbers around out of a personal vendetta against its rivals, enemies, former clients, etc.
Deloitte’s survey that states that American consumers are planning on spending less this back-to-school season causes us to speculate as to why the Big D would do such a survey? It’s a nice little press release we suppose. Shows that the firm is plugged into the current state of the economy, etc., etc. But then we got to thinking about how Heelys, the obnoxious shoes with wheels, recently dumped Deloitte because their fees were too high in favor of Grant Thornton.
Far be it from us to speculate about the temperament of a Big 4 accounting firm when it has business swiped away by a second-tier firm but isn’t it possible that Deloitte is bitter about the whole sitch? Isn’t it possible that Deloitte is merely putting out this survey as a way to scare consumers out of spending money on back-to-school junk like Heelys?
Back-to-School Shoppers Plan to Spend Less, Save More [Bloomberg]

Ernst & Young Is Here to Help (For a Small Fee)!

ernst_young.jpgWe thought that Ernst & Young was advising the New York Fed on the winding down of AIG out of the goodness of their hearts but it turns out it’s actually about the money.
E&Y could make as much as $60 million advising the New York Fed, which is 50% more than the initial agreement, according to Bloomberg. The NYF is also reimbursing E&Y for expenses, up to 10% of the professional fees. This occurs after the parties had initially said $40 million would be the cap but $60 mil is it, we swear, no more.
And because E&Y is solid like that, the firm is billing out partners and directors at discounted rates ($775/hour). I mean, ’cause, let’s face it, this thing’s a mess and E&Y is going to be working hard, working late, working weekends.
Ernst & Young’s Maximum Pay for AIG Advice Swells [Bloomberg]