The Big 4 – The World Is Too Much With Them

By • Jan 29th, 2009 • Category: Pure Content, The Big 4 And Globalization

The world is too much with us; late and soon,
Getting and spending, we lay waste our powers;
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!
This Sea that bares her bosom to the moon,
The winds that will be howling at all hours,
And are up-gathered now like sleeping flowers,
For this, for everything, we are out of tune;
It moves us not.–Great God! I’d rather be
A Pagan suckled in a creed outworn;
So might I, standing on this pleasant lea,
Have glimpses that would make me less forlorn;
Have sight of Proteus rising from the sea;
Or hear old Triton blow his wreathed horn.

William Wordsworth, 1770-1850

I rested for barely twelve hours.  Long day on Wednesday, starting with attendance at a taping of Oprah.  The subject is one I’d rather not dwell on and the experience was unfortunately underwhelming.  Ms. Winfrey looked tired and heavy and was complaining about a problem with her eyes.  She was phoning it in.
I came back midday and saw traffic on the blog spiking as a result of both the Satyam post of Monday and the EY post of yesterday.  It’s almost eerie the way the stories are all sort of intertwined. You’re going to have to indulge me when I get “linky,” as one of the commenters complained.  It’s almost as much for my own edification as for your reference that I find myself making so many references to previous stories of my own and others to back up and explain the issues I’m trying to bring to your attention.  It’s not going to slow soon, nor are the posts going to get shorter, as others have requested.  The new blog format will hopefully help you find and read the information more easily and help me format it better.  But I make no promises.  This is complex  stuff and you’ve got to have the interest and aptitude for it.  My challenge is to continue to develop your taste for the topic given those constraints.
Jennifer Hughes at the FT gets an Op-Ed spot today, and quotes the attorney bringing the case against BDO International in order to sum up the issues of the Big 4 global networks:
“It makes sense that they want to have a brand just like IBM or Mercedes. But when they get sued, they say ‘that’s not us, it’s someone else’. No-one else gets to do that, why should accounting firms be able to?” says Steven Thomas, the lawyer leading the case against BDO.

He claims there is an agency relationship between the international unit and the local, meaning BDOI was responsible.

If this is proven, it could be bad news for PwC.  Satyam was registered in the US, meaning US investors are likely to look to sue there, not in India.

I put this to Mr Thomas, who pauses, then says carefully: “I believe that there will be direct liability in the US for PwC – and PwC International.”

Unfortunately for Jennifer she went to press just as another important decision related to the Big 4 was handed down here in New York.  From the Wall Street Journal Law Blog:
New York Judge Puts Possible Bulls-eye on Deloitte Touche

New York federal judge Lewis Kaplan issued a ruling yesterday in the Parmalat securities litigation which could have accountants quaking, and plaintiffs’ lawyers licking their chops.

Parmalat, an Italian dairy conglomerate, collapsed in 2003 following the discovery of a massive fraud in which the company allegedly overstated its assets by $16 billion.

At issue in yesterday’s ruling was whether Deloitte Touche Tohmatsu potentially could be held liable for an allegedly defective Parmalat audit by its Italian member firm, Deloitte & Touche, S.p.a. Yes, Kaplan held, in denying a Deloitte Touche Tohmatsu’s motion for summary judgment. Here is the ruling.

“This is huge,” says Stuart Grant, plaintiffs’ counsel in the matter. Accounting firms, he says, often assert that their foreign affiliates are legally separate, thus limiting the asset pool available to investors who file suit. “They always argue that you can’t pursue the worldwide organization, sometimes successfully,” Grant says. “Judge Kaplan has finally made the law reflect reality. These accounting firms sell themselves as worldwide, seamless organizations. Now they are going to be held responsible in the same fashion.”


Don’t say I haven’t already told you this before, for example, here, here, here, here and here.

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23 Responses »

  1. Francine:
    I read Judge Kaplan's 30-page opinion in the Parmalat matter. I think it's well-reasoned and should stand up on appeal. D&T is in big trouble here.

  2. FM,

    What is going on with E/Y? Between the tax practice stuff in NY and there are some rumors going around that they gutted their healthcare practice including partners. Have you heard anything about this and do you plan to comment?

  3. @Sean in DC Unfortunately EY is only catching up to Deloitte and KPMG in particular and does not have luxury of time like PwC to just let their Advisory numbers drop by attrition and ongoing selective pruning. I have heard the EY Healthcare Advisory rumor. Up to 100 folks with only four partners left. I am seeking more info. It’s a shame that an area that needs so much advice is losing advisors who don’t think it’s worth it to provide that advice. Maybe it’s the uncertainty that is causing healthcare firms to delay buying advice until they know what business they’re going to be in under Obama administration?

  4. I’m kind of surprised this post isn’t getting more comments. This is a huge issue, with a massive potential impact on the Final Four. With PWC fighting Satyam accountability and now this – is anybody paying attention?

  5. I am confused – losing a summary judgement (when the judge does not really consider evidence) is unfortunate and costly for Deloitte, but hardly as concerning as described in the post. We may all agree that the global structure of the firms is suboptimal or even bad, but rejection of a summary judgement is hardly earth shattering news.

  6. Anonymous:
    I think it is earth shattering news. This is the first time a Big 87654 will have to go to trial on the issue. Read Judge Kaplan's opinion. What I think he is saying between the lines is: "D&T you are very likely to lose this at trial. Very likely. Your two-sided game has come to an end".

  7. Anonymous of 3:44 PM, I do not think you really understand what a summary judgment is.

    (Attorneys reading this, please excuse me, as I am not one of your guild.)

    A summary judgment is made on a matter of law where there is no dispute regarding the relevant facts. All assertions are construed AGAINST the party moving for summary judgment — i.e., for the paintiff/appellant to win a summary judgment all facts and circumstances are construed to be as the defendant/respondent asserts them to be.

    While an appeal is always possible, a summary judgment against one means that the point of law is settled as far as that judge and case is concerned. Trust me, it’s a major blow to Deloitte’s case.

    (Turning off layperson legal knowledge now, and returning to normal humanity.)

    – Tenacious T.

  8. Tenacious T:
    You are correct on the summary judgment rules. Generally speaking, interlocatory appeals are prohibited under the "one final judgment rule" which means D&T will have to go to trial and appeal Judge Kaplan's ruling after trial.

  9. Great post, as usual. Keep up the good work. Check out my site for more info on the Big 4.

    Thanks

    http://www.big4guru.com

  10. Fran,

    Can you confirm D&T laying off 4,000 employees nationwide in the coming months?

  11. @12:45 I have heard that al the firms will continue to cut, here and there and as things develop. I had not yet heard of something of that size at Deloitte. I will check into it. If you email me with any more details, that would help.

  12. @12:45 pm – Leadership communicated via voicemail to the partners today, announcing horrible period 8 results. Given the numbers, one would expect dramatic cuts. Although audit has been in the hole all year, the other money making functions are not sucking wind. Lots of white-faced partners in the office.

  13. At first I wanted to disagree with Kaplan on this. After reading his opinion, I would have done the same. I would deny summary judgment. He acted like a prudent judge.

    However, when this goes to court, I wouldn’t be surprised if DTT walks. DTT got itself in a pickle with some of the arbitration it does between firms. Having a shared resource for legal and insurance won’t help DTT’s case either. My guess is there are probably charge backs and service fees to cover DTT. We can call all of that membership dues.

    The control argument ultimately won’t fly. Sorry Francine, as much as you want it to happen, it’s not going to happen. Common quality standards don’t equal control. Quality reviews don’t equal control either. It’s all pretty silly if you ask me.

    Trust me, I’m not crazy about the current structures. However, what’s the alternative?

  14. @Chicago Accountant It’s not so much whether there “is” actual control but whether the international firms have given regulators and clients the impression they can, will, and desire to control things like risk and quality across their member firms and whether clients and regulators have a reasonable expectation that they should. That may not be the “law” but it is what a jury will consider. Let’s see what a jury thinks if this goes to trial rather than settles (and what happens n the similar case with BDO International that will go to trial sooner and not be settled.)

  15. 12:45 pm – significant deloitte layoffs in the next few weeks. unless eco turns, other waves to follow in april and fiscal year end. partners and directors are at risk too.

  16. [...] in the Financial Crisis” featuring two of the top lawyers in the securities litigation field. Stuart Grant of Grant & Eisenhofer P.A. and Michael Young of Willkie Farr & Gallagher LLP will [...]

  17. Here is a nice link to a sorta bio on the CTO of PwC …

    http://www.hcso.tampa.fl.us/pub/default.asp?/Online/qdisp/bn=05046413

    kinda says it all about leadership.

  18. [...] I’m not talking about the BDO International case or the Deloitte Parmalat case, although those two are game changers also.  In those cases, the audit firms may lose their [...]

  19. I worked for KPMG until last week, when me and 500 others across the country were laid off. However, they have no plans to slow recruiting. Five new hires will start in my old ( very small) office in the fall, as well as five summer interns, who are paid exorbitant hourly rates (meaning exhorbitant overtime). It seems that these big four companies want to appear to the world and the colleges from which they recruit that they are doing well and thriving. However, as Ihad been recruited out of college and had only been there 7 months, it appears they don’t really care what happens afterwards. Upon talking to other big four firms, I was told they had done their recruiting/hiring through 2010.

  20. OK. I am getting evil on these posts so I am going to start unsing a name: Robert Cohn. However, to get back on topic, laid off after seven months – I think everyone who gets laid off should attend BAP meetings of their respective firms and ask questions and put the people in uncomfortable situations. Give a list of all the lawsuits FS listed on another post – ask the status. On and on and on.

    -Bob

  21. Sorry, but whats a BAP meeting?

    Is deloitte still laying off? Man, what difference will 750k and 800k make? When will these partners stop being greedy? Lay off those partners than kill the geese that lay the golden eggs…

    – WatchYourBackJack

  22. @WatchYourBackJack

    BAP is Beta Alpha Psi. It’s where nerdy accounting students get together and think they are so smart because they have a high GPA. Unfortunately I had to be in it so I would have some sort of school activity on my resume back in the day.

    I suppose going to any recruiting event at a school and cause drama would be fun.

    Here is a link http://www.cba.ua.edu/accounting/bap/beta-alpha-psi-spring-2009-calendar for one school. Interesting because EY and KPMG aren’t on the schedule. And I think Alabama is a pretty good school.

    Looks like Deloitte already came though. But still, it would be humorous.

    Google search: beta alpha psi + your local university name.

  23. [...] term viability? I for one can’t wait to see how PwC spins this one. Jennifer Hughes wrote on the Op-Ed page of the Financial Times in January: “It makes sense that they want to have a brand just like IBM or Mercedes. But when [...]

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