KPMG And New Century – The Deed Was DoneBy Francine • Mar 26th, 2008 • Category: Audit Quality, KPMG, New Century
And this dispatch from an Australian blogger , who makes the connection between KPMG/New Century and KPMG and some recent failures amongst their clients down under….
Crikey readers will remember that MFS, Allco and City Pacific all had former KPMG auditors at very senior levels in their organizations. Meanwhile, KPMG were happily signing off financial reports which appear to have been incorrect…
Take that Supremes!
Norris in the NYT seems surprised to find that the client partners at the firms do not listen to the Risk and Quality or Technical Partners when making client decisions.
I have written about that issue specifically here. I compared it to the specific occurrences at Andersen with Enron. There are two major constraints which keep the Technical and Risk and Quality Partners from having final say and authority, regardless of what the firms tell the PCAOB and others:
1)The Client Partner is the one officially responsible for the audit. He is also the one who is on the system from a financial perspective and loses personally, big time, if the client walks away.
2)The partners who man the Risk and Quality and Technical Consulting areas of the firms are pulled, for the most part, from the client service ranks. And they rotate back in to client service after a time unless they are near retirement. Even retirees have a financial interest in the firm’s success, however.
Either way, these professionals are still under the influence of their other client service partners, both personally and professionally as well as financially, and in their industry group or technical area and for the firm as a whole. They are Partners! They want the firm to do well. No one wants to lose a big client. And no one wants to go back to client service when they have been responsible for losing the client and the revenue associated with a big audit.
There’s just no motivation to be the sacrificial lamb. It just ain’t done.
I also received a good question from a reader. It’s a question that is probably on other’s minds today. You might be surprised by my answer.
I am writing you with regard to the article “New Century Financial- It’s KPMG Again” published in your weblog. I’ve been offered a job at KPMG, UK which starts September 2008. Reading the recently released news I am really concerned about the future of my career as this situation seems identical to Enron incidence and the collapse of Arthur Andersen. I’d greatly appreciate if you could share with me your opinion of the possible outcome of this case and whether it may lead to collapse of KPMG. I am very thankful for your help.
An Interested Reader
You are insulated, in a sense, from what happens with KPMG in the US. KPMG in the UK will go on, in some form, regardless. I think that KPMG is only the first of the firms to see this type of suit. Deloitte actually has more exposure to losers. But New Century went bankrupt and it was one of the first failures, and so this precipitated a faster public evaluation of situation. Deloitte’s issues will go through courts instead of the court of public opinion as KPMG is now suffering through. Deloitte will settle and details will not be known.
I would not want to say anything to deter you from joining KPMG UK. Just keep your antennae up and make decisions that are best for you as time goes by. That includes taking advantage of this good opportunity now. Good luck and keep in touch.