• Goldman Sachs and PwC

    By • Dec 7th, 2007 • Category: Pure Content


    I’ve been following via print media the controversy surrounding a recent column by Ben Stein in the New York Times regarding Goldman Sachs.

    Ben Stein was a featured speaker at the Compliance Week 2007 conference I attended in Washington DC this past June. He was funny, erudite and blunt. I can’t say I agreed with everything he said, but I defend to the death his right to say it. He goes out on a limb and I envy his success in turning himself into a real renaissance man – he does movies and game shows, he’s an economist and he writes prolifically.

    His article about Goldman’s invincibility and shrewdness regarding the sub prime crisis begged the question for me – Who is Goldman Sachs’ auditor?

    Their auditors have been PricewaterhouseCoopers LLP ever since going public in 1999. And, boy, do they make a lot of money from this account!

    This past year, total audit fees were $43.4 million, audit related fees were an additional 3.3 million and tax fees were 2.6 million. In addition, they made $19.2 million more by providing services to merchant banking and other funds managed by Goldman Sachs subsidiaries. All of these fees were for audit and tax services. By comparison to prior years’ numbers, we can see that over the years, and like other large, complex, global companies, audit and related fees have grown substantially due to Sarbanes-Oxley. But the services to the Goldman Sachs funds have also been part of the package since almost the beginning and add a significant amount to PwC’s overall compensation.

    Goldman Sachs files its 10K in early February based on a November 30 year end. It will be interesting to see if PwC applies any stricter standards than in the past to Goldman Sachs and, therefore, changes its position as one of the few investment banks on Wall Street who has escaped significant sub prime write downs. However, there’s an almost $70 million reason for PwC to leave well enough alone.

    The aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered for the audit of Goldman Sachs’ annual financial statements for the fiscal year ended November 24, 2000 and for the reviews of the financial statements included in Goldman Sachs’Quarterly Reports on Form 10-Q for that fiscal year were $14.7 million. However, the aggregate fees billed by PricewaterhouseCoopers LLP for services rendered to Goldman Sachs, other than the services described above under “Audit Fees”, for the fiscal year ended November 24, 2000 were $34.0 million. I am assuming these fees were for tax services.

    The aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered for the audit of Goldman Sachs’ annual financial statements for the fiscal year ended November 30, 2001 and for the reviews of the financial statements included in Goldman Sachs’Quarterly Reports on Form 10-Q for that fiscal year were $12.4 million. However, the aggregate fees billed by PricewaterhouseCoopers LLP for services rendered to Goldman Sachs, other than the services described above under “Audit Fees”, for the fiscal year ended November 24, 2000 were $17.1 million. Included in this amount are fees related to other audit, tax and advisory services of $7.9 million.

    In addition to the fees described above, certain merchant banking, venture capital and similar funds utilize PwC. The aggregate fees paid to PwC for the year ended December 31, 2001 were $6.9 million for audit, $2.4 million for tax and other audit and $0.9 million for consulting services.

    The aggregate fees billed by PricewaterhouseCoopers LLP for professional services
    rendered for the audit of Goldman Sachs’ annual Financial statements for the fiscal year ended
    November 29, 2002
    and for the reviews of the Financial statements included in Goldman Sachs’ Quarterly Reports on Form 10-Q for the fiscal quarters of the 2002 fiscal year were $14.6 million.

    In addition to the fees described above, for the fiscal year ended November 29, 2002, PricewaterhouseCoopers LLP billed Goldman Sachs approximately $4.5 million for audit-related services, approximately $4.3 million for tax advisory services and approximately $1.5 million for consulting services, with no such consulting services having been provided subsequent to the second quarter of the 2002 fiscal year.

    In addition to the fees described above, certain merchant banking, venture capital and similar funds managed by Goldman Sachs utilize PricewaterhouseCoopers LLP to provide audit and other services. The aggregate fees paid by these funds to PricewaterhouseCoopers LLP for the year ended December 3, 2002 were $8.6 million for audit services and $2.2 million for tax and other audit related services. No consulting services were provided.

    The following shows information about fees paid by Goldman Sachs to PricewaterhouseCoopers LLP for fiscal year end 2003.
    Fees paid by Goldman Sachs:
    Audit fees 2003 19.2
    Audit-related fees 3.1
    Tax fees 2.4
    All other fees 0
    (a) Audit-related fees are fees in respect of internal control reviews, attest services not required by statute or regulation, due diligence and employee benefit plan audits.
    (b) Tax fees are fees in respect of tax return preparation, consultation on tax matters, tax advice relating to transactions and other tax planning and advice.

    PricewaterhouseCoopers LLP also provides services to certain merchant banking and similar funds managed by Goldman Sachs. Fees paid to PricewaterhouseCoopers LLP by these funds were $12.0 million in 2003 and $10.8 million in 2002. All of these fees related to audit and tax services provided by PricewaterhouseCoopers LLP.

    The following shows information about fees paid by Goldman Sachs and its consolidated
    subsidiaries to PricewaterhouseCoopers LLP for the fiscal year 2004.
    Audit fees 32.1
    Audit-related fees 1.9
    Tax fees 2.0
    All other fees 0
    (a) Audit fees in 2004 include the audit of internal control over financial reporting.
    (b) Audit-related fees include attest services not required by statute or regulation and employee benefit plan audits.
    (c) Tax fees include tax return preparation, consultation on tax matters, tax advice relating to transactions and other tax planning and advice.

    PricewaterhouseCoopers LLP also provides services to certain merchant banking and similar funds managed by subsidiaries of Goldman Sachs. Fees paid to PricewaterhouseCoopers LLP by these funds were $12.9 million in 2004.

    The following shows information about fees paid by Goldman Sachs and its consolidated subsidiaries to PricewaterhouseCoopers LLP for fiscal year 2005..
    Audit fees $35.1
    Audit-related fees $ 2.4
    Tax fees $2.8
    All other fees 0
    (a) Audit-related fees include attest services not required by statute or regulation and employee benefit plan audits.
    (b) Tax fees include tax advice relating to transactions, tax return preparation, consultation on tax matters and other tax planning and advice. PricewaterhouseCoopers LLP also provides services to certain merchant banking and similar funds managed by subsidiaries of Goldman Sachs. Fees paid to PricewaterhouseCoopers LLP by these funds were $14.0 million in 2005 and $12.9 million in 2004. All of these fees related to audit and tax services provided by PricewaterhouseCoopers LLP.

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    4 Responses »

    1. So where are you going with this? Last year KPMG billed Citigroup $73 million. These guys are not going to rock the boat. Who needs ‘em?

    2. If the public and the government want more auditing then there will be more audit fees. Doesn’t matter which firm it is (Big 4 or otherwise)
      The bottom line is that the cost of getting the audit wrong is many times the profit from the audit. – auditors can not afford to look the other way.

    3. Big 4 Partner:
      Are you a Big Four (BF) audit guy or a PR person? “The bottom line is that the cost of gettting the audit wrong is many times the profit from the audit-auditors cannot afford to look the other way”. I’m a BF alumnus, who isn’t? The fact is: they look the other way every day. Who are you kidding? The BF rarely get sued. On an expected value basis, BF litigation costs are just a cost of doing business. Do you understand expected value? How disingenous can you get?
      Carl Levin (CL) said to a KPMG partner in a Congressional tax shelter hearing about two years ago, “Don’t you guys ever get tired of lying”? What made CL’s comment to KPMG partner so delightful was: one of his partners tried to have me sell the shelter in question to my clients with typical BF condescension, “our technical people in New York vetted this”. I told KPMG guy so, “I’ve got the same books you do, show me”.
      I wouldn’t begrudge the BF their fees as an investor in public companies if I thought I got my money’s worth. I don’t.
      By the way, the KPMG partner who contacted me was one of the 16 who was indicted! Way to go Justice Department.
      I’m a radical, I think Sarbox compliance is makework, a waste of money. I’d like to see Sarbox repealed.
      I wait to see KPMG weasel out being sued for SFAS 5 non-disclosures with respect to Citigroup’s SIVs. In my opinion, I think KPMG should follow AA down the rathole of CPA history for its failures in the Citigroup audit. Full disclosure: I am not now, nor have I ever been a Citigroup stockholder.

    4. On this point I agree with Big 4 Partner wholeheartedly. Consulting subsidized audit during the late 80’s and 90’s. Audit was commoditized, considered a necessary evil by most companies and auditors accepted that. Doing what Sarbanes requires takes time and money, but more so since so many public companies got so lazy and remiss about the basic fundamentals of accounting policies, procedures, controls and required expertise during the go-go years. And it was the auditors that allowed it. Companies that continued to have tight controls and adequate, appropriate expertise in their accounting and finance departments during these years never complained about SOx. They had much less to do and their auditor could rely on their controls and so their cost inverses were proportionate and straight line. You get what you pay for. I don’t begrudge any of the firms their fees, audit or consulting, as long as they’re not being bought off in the process.

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