• Latest

    An SEC Fine for KPMG in the PCAOB Data Theft Scandal and Another Horrible Revelation

    “Innovation demands risk-taking… which, in turn, entails redefining failure, stripping away its power to inhibit.” Chairman and CEO of KPMG Lynne Doughtie

    The Securities and Exchange Commission settled charges on Monday with KPMG LLP for the ongoing case of its partners altering past audit work after receiving stolen information about inspections of the firm that would be conducted by its regulator, the Public Company Accounting Oversight Board or PCAOB. Five former KPMG officials were charged last year in the case that alleged they schemed to interfere with the PCAOB’s ability to detect audit deficiencies at KPMG. Two have pleaded guilty, two were found guilty and one is still pending trial.

    But in a new almost more egregious revelation, the SEC’s order also finds that KPMG audit professionals, including lead audit engagement partners sent exam answers related to mandatory continuing professional education, ethics and integrity, and training mandated by a prior SEC order finding audit failures to other partners, and also solicited answers from and sent answers to their subordinates to help them also attain passing scores. In addition to paying a $50 million penalty, KPMG is required to evaluate its quality controls relating to ethics and integrity, identify audit professionals that violated ethics and integrity requirements in connection with training examinations within the past three years, and comply with a cease-and-desist order. The SEC’s order requires KPMG to retain an independent consultant to review and assess the firm’s ethics and integrity controls and its investigation. I will be writing more soon.

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    The Big 4 And Globalization

    McKenna Interviewed On KPMG And FIFA By The Bottom Line Canada»

    I was interviewed by The Bottom Line magazine in Canada back in June on KPMG’s role as auditor of FIFA.

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    McKenna Interviewed By The FCPA Compliance and Ethics Report»

    I was interviewed back in August by Tom Fox for his podcast on FCPA compliance and ethics issues.

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    A China Fraud Dissected: Part 3 AgFeed’s Trusted Advisors Protiviti and Latham & Watkins»

    Company executives and directors like to believe they can purchase a posse of “trusted advisors”. Instead, they’ve often only bought a gaggle of self-interested auditors, lawyers, and consultants. But to whom does each of those vendors owe loyalty?

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    Where I’ve Been

    Speaking Engagements/Conferences»

    The late summer and fall schedule is filling up! Stay tuned for return trips to Ohio State and to Columbia University Knight-Bagehots and a return to DC by the Baylor MAcc program. At the end of August I’ll speak for the first time to the University of Michigan MAcc program here in D.C. and then on November 4, 2019 head back to NYC to moderate a program, “What Investors Need to Know about Audits Investor Audits,” 4:00 PM – 7:00 PM, sponsored by the CFA Society New York.

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    McKenna at Grant’s Interest Rate Observer 35th Anniversary Conference»

    It was a great conference and I have now posted the slides.

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    McKenna at The Frunchroom»

    She’s a native South Sider, and she definitely traveled the longest distance to be at the show at Beverly Arts Center. Guess who?

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    The Case Against The Auditors

    Update: Botta v. PricewaterhouseCoopers LLP, Case 3:18-cv-02615-RS»

    A judge denied PwC’s motion for summary judgement. The case goes to trial in October. Mauro Botta brought an action in district court in California against PricewaterhouseCoopers LLP alleging that PwC wrongfully terminated him in retaliation for a whistleblower complaint he made to the Securities and Exchange Commission about PwC’s auditing practices. There’s been a lot written about the case, which is ongoing.

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    The Question of the KPMG Whistleblower»

    The timeline of who told whom what and when, this time around for KPMG, is a bit more complicated than David Middendorf described in his testimony in the criminal case against him for allegedly conspiring to steal PCAOB inspection data.

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    Update: KPMG: Whittle and Holder Plead Guilty»

    KPMG partner Thomas Whittle broke ranks on October 29 and pleaded guilty to all five criminal charges. He is now cooperating with prosecutors. Do you have more information about this case? Leave a comment here, one I can leave unposted, if you wish to communicate confidentially or DM me on Twitter @retheauditors for Signal encrypted confidential messaging instructions.

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    Your Career

    New research: Accounting students are not generally psychopaths but some slip through»

    New academic research says accounting students are less likely to be psychopaths who will commit fraud but surprising admissions by some suggest a reason to be wary.

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    KPMG Takes Its Turn With a Big 4 -Sized Scandal»

    The KPMG/PCAOB scandal is neither the first or last time a Big 4 firm reminded us that there’s nothing special anymore about being a Big 4 firm professional The firms, and their partners, are not capitalist eunuchs, immune from perverse incentives that advocates for free markets say, if big enough, can corrupt anyone.

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    PwC Settles Campbell Overtime Case; Impact To Profession Is Happening Now»

    PwC recently agreed to settle the Campbell v. PwC overtime class action lawsuit pending in California. I first wrote about the case on October 25, 2007. Here’s an excerpt from my wrap-up at Medium.com.

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    The Big 4 And Consulting

    The NYDFS Case Against Promontory and the Bigger Problem of Big Four Bank Consulting»

    Bank regulators should start hiring the consultants that are responding to bank regulatory sanctions, consent decrees and NPA/DPA legal orders directly, and also strictly monitor them. It’s time to change for regulators to change their approach before another waste of time, money and public trust occurs.

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    “Tax Avoidance On An Industrial Scale” Says British MP About PwC’s Luxembourg Work For AIG And Others»

    British MP Margaret Hodge grilled Kevin Nicholson, of PwC’s UK tax practice, in a Parliament Public Accounts Committee hearing on Monday. You know you’re on your “back foot” when the first thing out of your mouth has to be a denial that you lied under oath. More details about PwC’s tax avoidance scheme for audit client and US government owned AIG.

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    Luxembourg Tax Leaks Put PwC On The Defensive»

    My latest column at Medium.com responds to PwC’s #LuxLeaks defenses: Illegal docs, legal advice. I also raise the obvious auditor independence issues which no one else is reporting.

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    Writing for Others

    Mick Mulvaney, the CFPB and a “thing”»

     Warning:  Coarse language, because we may get a lot of snow in Chicago but we’re no snowflakes. Last week I went to an American Bankers Association Conference for bank government relations executives. I wrote a story about some things that Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau (and also a cabinet member […]

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    Update: McKenna at the University of Chicago’s Stigler Center»

    I’ve updated the post to point to some recent news about PwC and banks that failed in Ukraine and Spain… I returned to Washington D.C. and my job as a journalist at MarketWatch in late June, after almost three months as a Journalist in Residence at the Stigler Center at the University of Chicago Booth School of Business. My fellowship deliverable, in exchange for the opportunity to study with the researchers, was three posts for the Center’s Pro-Market blog on the state of the audit industry.

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    At the Stigler Center Pro-Market Blog: Big 4 Lobbies Against SOx»

    The last time anyone attempted to “modernize” auditor independence rules it was the Securities and Exchange Commission, in 2000, before the Enron failure and Arthur Andersen’s demise, as a result of the growing concern that firms increasing focus on consulting was distracting them for their core purpose, auditing. The Big Four firms are now opportunistically lobbying to go back in time, before Enron, when the industry was self-regulated and mostly left alone, able to have as many conflicts of interest as their powerful public clients would allow.

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    You Can Quote Me On That

    Gee! No, GE!»

    A wrap-up of writing about GE since 2011.

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    Mick Mulvaney, the CFPB and a “thing”»

     Warning:  Coarse language, because we may get a lot of snow in Chicago but we’re no snowflakes. Last week I went to an American Bankers Association Conference for bank government relations executives. I wrote a story about some things that Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau (and also a cabinet member […]

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    Remarks at New York University Forum on Non-GAAP Metrics»

    Here are my remarks from the panel discussion on non-GAAP metrics I participated in onNovember 7, 2016 at NYU Stern.

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    Food for Thought

    McKenna On Buffett, Berkshire Hathaway, and Kraft Heinz»

    Has Warren Buffett run out of long-run? The stars aligned and Warren Buffett issued an annual shareholder letter that was forced to include an embarrassing charge for significant losses on Berkshire Hathaway’s investment in Kraft Heinz. Buffett’s letter was a rant against GAAP, and a 180 degree turn from his typical long-term focus. I was in New York […]

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    Amazon and taxes, oh my!»

    Jeff Bezos has bigger problems than the Queens pull-out and criticism of Amazon’s taxes. He may want to wipe that smug look off his face.  Photo from Forbes.  Amazon backed out of its selection of Queens, NY as a location for a new headquarters this week.  It was a big story, revolving around new Queens/Bronx […]

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    Do Investors Care At All About Audits Anymore?»

    Would investors still pay for an audit if it weren’t legally mandated? Are regulators and exchanges perpetuating a government-mandated oligopolistic exclusive franchise for the Big 4 and a few additional firms that produces information investors now ignore?

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