Sitting Ducks

By • Jun 28th, 2007 • Category: Pure Content


You may have noticed… I’m feeling less than fair minded, even handed and charitable towards my former firm of late. It will pass…

I’ve often had to respond to one or another of my friends or former colleagues at one of the Big 4 who complained I was being too tough on their particular firm. I’ve actually counted and I’ve written critically, but always truthfully and with some basis, about all four firms equally, more or less, give or take a few stories. It only seems like sometimes I’m beating up on one or the other because the press goes in spurts – lots of bad news about one firm, then no news or follow up for a while, then another is the subject of many stories for a while and then that coverage fades.

I think the Big 4 do a splendid job managing the media in the US, but less so outside, especially in the UK. There you find many more journalists that ask tough questions and are critical (in an intellectually critical way, not a mean critical way) than you ever find here in the US. It seems a “negative” or serious critique only gets printed in the US when it is impossible to suppress it anymore. I mean, I had to go to the Financial Times to read that Don Nicolaisen thinks the firms should open their books and have independent directors.

For example, the Wall Street Journal has written much about the possibility that the judge will dismiss the indictments of the KPMG partners in the tax shelter case, due to their constitutional rights being trampled on. But, in addition, they’ve actually also said that the case should have never been brought!

KPMG Injustice
“The Justice Department’s case against 16 former KPMG partners for tax evasion continues to unravel, with prosecutors themselves conceding late last week that federal Judge Lewis Kaplan has little choice but to dismiss the charges against most of the defendants. Judge Kaplan ruled last year that Justice had violated the defendants’ Constitutional rights by pressuring KPMG not to pay their legal fees. He is now considering a defense motion to dismiss. Prosecutors continue to protest the judge’s ruling but on Friday they admitted in a court filing that dismissal is the only remedy for the rights violations. The more honorable route would have been for prosecutors to acknowledge their mistakes and dismiss the charges themselves.

The truth is that this tax shelter case should never have been brought…”

But there’s nary a mention of the blockbuster revelations of the real feelings of the US Justice department, their lawyers and others involved in the case about the firm and the accounting industry in general. Someone’s feelings may get hurt. And they’re worried about the effect that Rupert Murdoch may have on their objectivity and unbiased reporting? Please….

But enough about me. This post is supposed to be about PwC. It saddens me but I must report…I was not surprised to see PwC run away whimpering like a girl in Moscow. My Google Alerts have been beeping all week with commentary regarding their latest about-face. But that coverage has been almost all from media outside the US. It’s like the US media believe that no one knows or cares about what the firms do outside the US. Do they think that their readers can’t spell Yukos or Russia (or Chuo Aoyama).

Maybe so… This week’s issue of the Economist has a quote by Mark Cheffers of Audit Analytics, who I met in Washington DC at the Compliance Week Conference.

“…PWC’s volte-face seems unlikely to hurt it elsewhere in the world because of its federated structure: Mr Kubena says that the decision to withdraw the audits was the Russian firm’s and entirely appropriate given the new information. Any controversy is likely to be discounted by outside observers as an unfortunate fact of Russian life, particularly where Yukos is concerned. “I doubt events in Russia would have any effect on perceptions of PWC in America,” says Mark Cheffers, boss of Audit Analytics, a research firm. Instead, the likeliest victim of the saga is that normal, functioning economy of which Mr Kubena used to speak.”

Fortunately, I don’t have to say anything. They can say it all for me. I like this one the best.

“On June 25, PricewaterhouseCoopers Audit, a Russian subsidiary of PwC, withdrew its Yukos audits for 1995-2004, saying that the information provided by Yukos’s former management “may not have been accurate.”

The Moscow office of PwC said it had obtained new data about the operation of the bankrupt Russian firm, but the business community still wonders what made a respectful international auditor take such a scandalous decision.

It appears, however, that nothing much has happened, as major international auditors are known to have made similar mistakes. Moreover, the root of the scandal lies in the inherently contradictory actions of auditors.

The so-called Big Five accounting firms – PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, KPMG and Arthur Andersen performing auditing, tax, and consulting services for large corporations – have had many problems in the past century. But they went unnoticed by the public, because their mistakes, when exposed, were rectified behind closed doors without affecting global business.

The 21st century has introduced a new level of transparency, and auditors have immediately made the front pages…”

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3 Responses »

  1. Can someone tell me what it means to have PwC “withdraw” its Yukos audit letters issued over the past decade? Has this happened previously? Does this mean I may withdraw investment decisions made in reliance upon those PwC letters?

    May I withdraw some of my own decisions over the past ten years? Investment decisions? Maybe a marriage or two?

    I have been watching for a long time and have never come across this behavior.

    Does anyone know how many PwC epople are in Moscow jails awaiting release?

    I do know that, whatever else this withdrawal means, it will be relied upon in an effort to help the Russian governmnet in its defense of various maytters in litigation and arbitration.

  2. Bruce,
    To me, “withdrawal” is the “back seat of Dad’s Chevy” approach to limiting your potential liability and risk – immature, selfish, and very unsatisfying.

    But seriously, I plan to look up the technical liturature on this technique this weekend, in between brunches, hair salon appointments, and my 2 year old niece’s birthday party. Don’t envy my glamourous life.

  3. [...] Sitting Ducks June 28, 2007 It saddens me but I must report…I was not surprised to see PwC run away whimpering like a girl in Moscow. My Google Alerts have been beeping all week with commentary regarding their latest about-face. But that coverage has been almost all from media outside the US. It’s as if the US media believe that no one knows or cares about what the firms do outside the US. Do they think that their readers can’t spell Yukos or Russia (or Chuo Aoyama). [...]

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