It’s A Race To The Finish – But There Are No Winners

By • May 11th, 2009 • Category: BDO, Deloitte, EY, Grant Thornton, KPMG, Latest, PricewaterhouseCoopers, Pure Content, The Big 4 And Globalization

Not so long ago, Dennis Howlett and I went public with a bet:  

Which Big 4 audit firm is the next to fail?

This may seem like a dead pool – a quite depressing and morbid fascination with something that will add pain and misfortune to so many.  I have been accused of being so totally negative that I strain credibility.  After all, isn’t there anything good to say about any of the firms?  

Isn’t some audit failure natural? Isn’t some error and omission in the audit process the result of a rational cost/benefit formula at work – one that determines how much more testing, sampling, investigation, questioning, and verification work should be done to reduce risk of material misstatement to an “acceptable” level?

Isn’t everyone cutting staff in this recession? Why can’t the audit firms run a business like any other capitalist and make a profit? Why are auditors any more responsible for the public interest than lawyers?

Aren’t plaintiffs’ lawyers too aggressive and going after audit firms only because they have “deep pockets” ? Aren’t auditors responsible only for certifying based on what management tells them? Can anyone hold them responsible if they were “duped” by bad guys? 

The litany of crybaby defenses goes on and on.

Frankly, it’s getting a little tedious.

Let’s face facts. Dennis may be right.  It may be EY that’s next.  

Even before the conviction this week of four current and former partners of Ernst & Young for criminal tax fraud involving tax shelters, EY had a bundle of other trouble.  They were the auditors of Lehman Brothers and are being sued for their role in that failure. They have Madoff exposure.  They are also co-auditors for Societe Generale and auditor for UBS – two problem children, for sure. There is speculation about EY in other quarters, and although I don’t agree with their reasoning, the conclusion is the same.

Dennis believes that I’m betting on PwC as next to fail.  I don’t honestly remember committing to that, but I’m willing to go with it for the sake of argument.  This is in spite of the fact that the other Big 4 have plenty to worry about and the next tier firms are in no way ready for prime time.  Wishful thinking that BDO can somehow win their appeal in the Banco Espiritu Santo case, that Grant Thornton won’t get hurt by Refco, or that McGladrey is innocent in the Sentinel case is trumped by the fact all have additional exposure to Madoff.

KPMG, of course, has New Century, Anglo Irish Bank, Citi, Siemens, and others.

Deloitte, well, too many to count. And the Parmalat case is a potential model changer. And a very embarrassing insider trading scandal. Then there’s the loser consulting gigs and a declining demand for consulting, all of which makes for never ending cuts and a not so rosy outlook.

And yet, for my money, PwC is still the closest to the precipice, if only now because of Satyam.

Think about it.  It’s their third strike (at least that we know of) internationally after Japan and Moscow.  Two of their Indian partners, for God’s sake, are still in jail – thrown to the prosecutorial sharks by the Indian Central Bureau of Investigations. The Chairman (soon to be retired ) of Pricewaterhouse International Limited, Sam DiPiazza, has pulled out all stops in investigating what occurred in India, sending US and other professionals to “assist” colleagues in India with comprehensive audit quality reviews, and personally meeting with Indian government officials and others worldwide to try to repair the “lost trust.”

And then there’s PwC’s Madoff exposure.  

And the lawsuit for wage and hour violations in California that they’ve already lost on the facts but are vigorously appealing. They completely flubbed the administrative responsibility test in this case and will lose the licensing argument.  Why?  Because the fear mongering they’re trying to stir up through proxies (there have been friend of the court briefs filed by business organizations sympathetic to PwC) are just that. Empty threats. The law firms have nothing to be afraid of if audit firms are required to pay overtime to not-yet-licensed associates. The law firms exposure is minimal.  After all, you pass the bar and are a licensed attorney in most states by late fall of the year you graduate.  Most law firms don’t tolerate a delay or a failure to pass the bar the first try, especially for top graduates. Contrast this to the audit firms. You can work for five to seven years, eighty hours a week during busy season, before making Manager level, the typical cutoff for future promotions without a CPA.  

And there are still questions lingering over their role in Northern Rock. And their forays into gambling audit have not been so successful all the while they’re advising the US to open up online gambling in order to reap the tax revenues.

The rumbling has also started in the comments on this blog over PwC’s stealth “reductions in force” and their broken promises over start dates and starting salaries to graduates. It’s fully expected that additional staff cuts will come soon and be of such a volume that it will be hard to hide behind the “didn’t fit with our performance culture” excuse.  

Finally, there’s the strategically disastrous purchase of BearingPoint’s Commercial Services practice.  Sources tell me due diligence has been non-existent, it’s solely an ego-trip for current leadership, and there’s a shell game going on in public statements regarding their interest in full blown systems integration services. The probability that  integration of the operations, financials, staff and infrastructure will be smooth and trouble-free is in the low single digits.

Yep.  Of the Big 4, my bet is with PwC US to fail in the next twenty-four months.

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84 Responses »

  1. What are accounting grads supposed to do in the next few years if the major firms seem to be sinking ships and the next tier aren’t safe either? granted, I’m not studying audit (I’m tax) and I am not so far in the process (2011 graduation), but news even for the tax side isn’t encouraging (EY tax shelter fraud, etc)

  2. Currently employed as a consultant (MBA, no accounting degree) in one of the PwC specialty area practices for the past 10 years as a Director, I see first hand the change in corporate culture. The partners have attempted to adapt a “Japanese” style of management where PwC is your family and your life, and anything not PwC initiated or approved should be secondary (inviting everyone in a market group to join the partners at the local tavern for drinks on Friday night so we can “connect” is an example of the warped thought processes by the partners. Most of us have worked long hours during the week and would rather join our family on Friday evenings. I prefer to be at my kid’s soccer game without AOB from the PwC alcoholic get together on a Friday eve). It appears they could be starting the staff cuts at higher levels by marking down the annual evaluations of Managers & Directors who were too involved in servicing existing clients and did not expend enough hours marketing to add new clients. Corporate atmosphere is that client service is to be performed by senior associates and below. Manager and above is supposed to market. One senior partner actually mused that anyone can do the work once it’s sold. You wonder why they have this large team of sales persons who are supposed to be responsible for marketing the firm’s services (and are being paid a salary + commission), if they are putting so much pressure on the Managers and Directors to do the same function. Wonder when the clients will wake up to the fact they are not receiving the level of consulting they are paying for. It’s a glass house waiting to shatter. Question, will it be from inside or outside”

  3. Go to med school…I shoulda been a doctor.

  4. Tax isn’t safe, big 4 is trying to outsource this to india. My advice, get an engineering degree, the big 4 are ruining this industry.

  5. I agree that the big4 are not the patron saints of business that they are supposed to be, but 24 months is a very short period of time. You may be on to a lot of good ideas that can potentially lead to the downfall of one or more of the big4, but 2 years is not enough time for these problems to take down a whole firm.

  6. @007CPA

    I could tell you why I feel so strongly, but then I’d have to shoot you. :)
    Francine

  7. 007CPA @ 5 —

    You say “… 2 years is not enough time for these problems to take down a whole firm.” Your conclusion lacks evidentiary support. Please redo the working papers.

    So, how about a counter-example? Let me ask you, Mr. Bond, just how long do you think it took Andersen to go from “Houston, we may have a problem here” to “closed for business”? Five years? Ten years? Want to try for more?

    I’ll tell you, since you asked so nicely: October 2001 to June 2002. That’s nine months — max. Nine months to take out the most successful of the Big 5 firms and reduce it to the punch-line of a Saturday Night Live joke.

    You kinda may want to rethink your position on the whole timing thing….

    — Tenacious T.

  8. I put my $$$ on DT (the most disgusting of the bunch). DT is actively shedding partners as we speak. The organization is full of Flanagan’s. If you trace DT culture, you’ll learn that the disgusting way in which it conducts itself is part of its history.

  9. This is fear mongering at its worst.

    There is absolutely no chance that the any of the Big 4 will fail within 24 months. Do you really think these lawsuits are relevant to companies in the U.S. that require audits of the size that only the Big 4 can perform. Do you think the audit committee’s of Exxon, Wal-Mart, GE, etc. are going to say “gee, there were a couple international lawsuits this year, let’s use a local CPA firm as our auditors this year.” No way. The size and scope of these audits would be incomprehensible to even the regional firms. Whether audits are perceived as a value added service or a necessary evil, the fact remains that audits are, in fact, required.

    For all the students and graduates reading this, DO NOT be fooled into thinking that you should pursue a different career. The Big 4 are not going anywhere and, even if they did, a career in accounting would remain one of the safest and most secure. There is absolutely no need to worry.

    The Big 4 Guru

  10. Francine: Isn’t some audit failure natural? Isn’t some error and omission in the audit process the result of a rational cost/benefit formula at work – one that determines how much more testing, sampling, investigation, questioning, and verification work should be done to reduce risk of material misstatement to an “acceptable” level? The very questions you ask “rhetorically” are liegitimate – and must be answered; thus, audit firms cannot – and should not – be held to standards higher than those to which other licensed professionals are held!

  11. @Big 4 Guru

    You assume a few things:

    1) That audits wil continue to be required by regulation in the form they are now delivered.
    2) That the firms can afford to continue to settle these large lawsuits rather than have the facts decided at trial. Do you have a view to their balance sheets and funding sources?
    3) That the two international cases that will go to trial, BDO and Deloitte Parmalat, will be won by the firms.
    4) That more internaltional suits will not be brought, such as Satyam, further stengthening the case that the firms’ business model must change since it serves two masters, neither well.

    You who pooh-pooh my ideas and assume that both clients and recruits will continue to be able to choose the Big 4 are delusion promoters. I see dead people.
    The next tier firms are not a viable option, I agree, to audit large companies in the way it’s being done now. But that is the point. The way it is being done now serves no one but a limited number of each firms’ partners.
    Francine

  12. @fm and @TT,

    The reason why I said that 24 months is not long enough for the whole big4 world to get turned upside down is that there is not a solution of the problems put forth. If one of the big firms go down that would leave 3 big, a corporation could use one for audit, one for tax, and one for consulting but leave no other options if they had to change one for whatever reason. Having 4 big firms solves this problem. This is why I say that it would require a solution to these problems and an alternative to the big4 before one of them can fail.

    and to fm in #11.
    “1) That audits will continue to be required by regulation in the form they are now delivered.”
    I have read where you have said that the audit requirements will change, but I see this as a hard pill to swallow because this will be sold as getting rid of SOX legislation. I don’t see how the public will be able to understand this. CPAs wont like it but they may understand the change. My fear is that “Joe Investor” thinks that SOX protects him from financial fraud, and since he does not see the Big4 as the big bad wolf, will not support this change.

  13. Place yourself on the audit committee of a large public company. Who would you turn to to provide you with the assurance that your company’s financial reporting is legit. Something will always serve as a check to management. True, there is always room for improvement in the audit model, hence the increasing number of audit standards. But to say that the entire model is flawed and destined for failure is only making the opposite of all the assumptions that you claim I am making.

    Someone e-mailed me saying “did you see the latest post on retheauditors?” He is considering switching career paths because he is afraid that the Big 4 will not be around long enough to support a career. That is absolutely not the case. I might be a little worried if I was a current partner in one of the firms being sued, but would have absolutely no reservation of starting a career there now.

    What do you think happened to all the Anderson staff? Do you think they are all unemployed? No, they were absorbed by the other firms. If by some insane twist of fate one of the Big 4 went under, the same would happen. The market would absorb the employees and the regional firms would get bigger. Your argument seams to be that the audit profession is doomed, which I have to say is totally off base.

    What do you propose as an alternative? Until there is a viable and supported alternative there will be no end in sight for the Big 4. From what I’ve heard you’re the only one painting such a dire picture and even you don’t have a solution.

  14. @Big 4 Guru

    I have never told anyone publicly or privately to not work at an audit firm or to leave. I may have helped them decide which firm, or if a particular job is not right for them anymore or meeting their needs. I may have helped them see if the path others set out for them is really the one they want for themselves and the options if they are forced to change course unexpectedly. My purpose is to inform and open the eyes of all involved as to the risks, rewards, processes, business practices, model, threats, opportunities… I want young and mature professionals to go in with open eyes, and for clients and others dependent on the work of the firms to be informed so they can receive the service they are entitled to.

    However, the current model is not protecting shareholders. It is obviously not making a lot of employees happy, either, as well as disappointing some other stakeholders such as vendors and communities. When I say that one more will fail it is not a wish. It is a lamentable fact, based on reality.
    I don’t wish it on anyone but it can not be avoided or mitigated unless those responsible act, for a change, not out of self interest. That includes new recruits.

  15. @big4guru, A lot of top students are not going to public accounting anymore. They are going to govt agencies and private. They see whats happening, and they don’t want their career outsourced and or their firm to fail. Professors and top universities are starting to lose trust in these firms in my opinions, especially since they have been altering signed offer letters. Go to greendotlife.com a underground forums of deloitte employees. The morale at this firm is abosolutly terrible based on their discussions.

  16. @fm and @ HereNow

    I know someone who “lost” a good friend to the debacle at Deloitte and I only wish someone had opened his eyes to this disingenuous corporate culture…

    “…style of management where PwC is your family and your life, and anything not PwC initiated or approved should be secondary (inviting everyone in a market group to join the partners at the local tavern for drinks on Friday night so we can “connect” is an example of the warped thought processes by the partners… alcoholic get together on a Friday eve).”

    Insert “Deloitte” and you have the same picture. Family, friends and life outside The Firm ceased to exist for this “newbie” and by the end of busy season, he was definitely a changed person: self-important, fearful, sarcastic and happy to feel better at the expense of others. In some instances, a layoff may be a blessing.
    .

  17. dont be fooled by DTs propaganda…the very things that Barry Salzberg said were “non-negotiable” were negotiated…either on the sly or through “performance” and “personal” issues. There is no more diversity anymore in my offices that I used to see…I always thought they were at client sites working hard..Today I heard they were periodically “separated”…either Barry hasnt a clue or he feigns ignorance… they do reductions in force due to lost clients and reduce employee’s budgets due to cuts from clients, how come there isnt any significant cut in partner compensation??? wasnt there supposed to be a risk involved in being a partner?..by the way, if you are thick with the partners, your budgets arent cut and you will get the best clients and land up with the best utilization at the end of the year and the best rating and the most money…..the morale is just sadness, helplessness and bewilderment everywhere….no one trusts the ethics line to make any complaints either…what a mess…sadly, clients have started to read these blogs as well….just heard that a laid off ex-DT employee committed suicide…cdnt take it well…so all you folks out there, take it easy…this isnt the end of the road and you deserve better than give up..so hang in there….you owe it to yourself.

  18. Question number 1, what if I asked you, in 2001, that you believed Anderson would collapsed in one year, would you think I was crazy? Question number 2, what did the Big4 really change the way they perform audit, conduct business, treat their employees? Question number 3, what is a big deal if big 4 suddenly disappear from the world?

    Big4Guru, tell you friends that they don’t need to change their career. The world needs good accounts and auditors, and the world will be just fine without any, or all of the big 4s…

  19. @17 — until you experience it (as I have), it is incomprehensible that a firm like DT could commit the practices it does (illegally) and get away with it — over and over again. The insecure partners are using the layoffs to target those that threaten their positions, making up lies to substantiate the layoffs, and trashing people even after they leave. At the same time, the Deloitte alumni machine is spouting BS about assisting laid off employees with jobs and the Deloitte website is giving advice on layoffs during economic hard times. These partners need to be thrown in jail, not for just being bad leaders, auditors, tax professionals, and consultants, but for lying, slandering, and undermining people’s careers.

    fm — could you open up a blog for us to post illegal/unethical practices that we have witnessed at Deloitte? I bet Obama’s team would like to take a read.

    Given Obama’s new anti-trust legislation, someone please ask him to extend it to Big-4 non-solicitation and non-compete provisions. The Big 4 layoff and hold people to these provisions in this economic environment. How is this fair competition?

  20. @Anonymous #19

    I can open up a new post regarding illegal /unethical practices and we can collect comments. Good for my book and the lawyers I know will love this. I will do it tomorrow.

    Non-solicitation, non-compete clauses are always able to be contested. All it takes is time and money. And some huevos. But it’s possible to break them because most of the time, in most circumstances, they are unenforceable and actually illegal in some states. Universities should protect their students more and tell the firms to stop putting these clauses in the employment offers and contracts or they can;t recruit there.
    Francine

  21. @17, you mentioned that “just heard that a laid off ex-DT employee committed suicide”. Can you give more info about that? This is so horrible.. I am sure we wouldn’t find the news on DeloitteNet…

  22. fm:

    An offer for people to tell their own “illegal” stories is an offer to get a lot of whiney, unsubstantiable stories from former employees. I’d tread very, very lightly when including any of these allegations in a book.

  23. @Clown College

    It’s just a way to collect ideas, leads, and things to follow up on. The challenge of a book is my desire to get interviews and to research and verify any examples and stories that are included, more so than I can do now. I do my own research and try to limit the blog to what I know and what I can verify. But the requirements of a book, as you rightly point out, are much greater. Time and money. That’s all it takes. :)

  24. @21 – understand the need for info -but sorry, cant reveal more info.. want to respect the individual’s family’s need for privacy…the info was provided to discourage the negative.

  25. look into what larry summers had planned for AA after its demise. resurrect the giant in the fashion AA himself could have been proud of: an audit firm, nothing else, not tax, not consulting, nothing but audit, zero conflict of interest. hold its people to the highest ethical standards, take no crap from anybody, not boards, cfos, ceos, or even congress, and do audits better than anyone else. the cost to the accounting firm? actually, larry was thinking of charging a hefty premium…

  26. FM:
    If a Big 87654 firm fails my money is on PWC. I admit, I have a special dislike of the PWC, the most arrogant of the Big 87654. Why PWC? It “audits” both AIG and GSG. All PWC needs is one smart Congressman or Senator at some public hearings about AIG’s failure and AIG’s revenue recognition practices are exposed with respect to CDS. Next the Justice Department picks up the football, and the E&Y tax fiasco will be relegated to ancient history. Why? Pat Buchanan’s pitchfork brigade is furious with AIG and its $173 billion bailout. What better way to keep the masses happy than feed it a few PWC partners and the whole firm to boot? PWC gets my vote.
    I have followed the Satyam story closely and can’t believe the PWC “party line”. Who does Sam think he is kidding?
    I would be surprised to see BDO win its case on appeal.
    There is so much Big 87654 questionable behavior. It’s a veritable cornucopia of crime and incompetence.

  27. I was telling my partner i am working with today that the world would be much better if the Fortune 500 was audited by 500 different CPA firms. Of course, you can expect her reactions and response…

    This is just my dream…

  28. Big 4 is not sustainable, the business model does not work, paying a company to attest that you are in compliance and than trying to win business from that same business. Get real… Public accounting won’t look the same in a mater of time in my opinion.

  29. Agreed with # 28 – and for you libertarians out there, this is a great time for “creative destruction.”

    The model cannot continue as is – those firms who get this, and adapt, might survive, if someone smarter and savvier doesn’t build a better model first. And if they don’t change their way of thinking? Chances of survival are slim and none. But that’s how the “stop complaining” cabal likes it, right?

  30. Whoever posted a note regarding “independance” practices of the big 4 hit the nail right on the head. It doesn’t matter if it’s an audit client, if they need a project performed that is prohibited by the independance rules, someone in the internal independance office will know how to word the proposal letter to get around the problem. My favorite is “the Firm will suggest to management possible corrective actions. It is management’s responsiblilty to determine whether the suggested actions are appropriate in the specific instance”. Give me a break. If management were able to make decisions, they wouldn’t be hiring a Big 4 at exhorbitant prices!!! The Big 4 do anything for money, they will do whatever is necessary (I emphasize that!!!) to make sure that a competitor firm is not selected to perform a non-audit engagement at an audit client. Big 4 obviously contributed significantly to the Wall Street mess. All of the banks and brokerages were audited by SOMEBODY…even Madoff!!! We’ve reaped what’s been sown…Forgive me if my terminology is not exact, I’m not an accountant, but a specialty area consultant who sees some really interesting stuff from the “inside”.

  31. I am disappointed in what this blog has become – you don’t really care about whether or not the business of auditing becomes better, but rather you are just being mean-spirited and actively rooting for companies to fail. These same firms you rail on and bash are the same firms who employ many of your “spies” (for lack of a better term). You are helping to dig their graves by posting unsubstantiated stories that seep out into the market place.

    To Anonymous #19 – if you witnessed illegal or unethical practices, why did you not report them? Why couldn’t you talk to the ethics hotline or even a newspaper reporter if you had concerns about bad practices? Why? Because it’s easier to post unsubstantiated rumors on websites – you can bypass the middle men, post anything you want, and now it becomes a problem of “guilty until proven innocent.”

  32. While I can appreciate your frustrations, and perhaps agree in some small way to the tone of the website, I would call into question your integrity in thinking that merely because a Firm employs thousands of workers that the employees should refrain from voicing their concerns.

    Think about it this way – If a staff accountant had an issue – would he tell the manager. Probably not. The manager would label him a whiner and give him a bad eval. Would he tell the senior manager. Ditto. Senior manager would be afraid to raise it to the partner. Who does the staff tell – his peers both inside and outside the Firm.

    Said another way – You go to a restaurant and have a crappy meal and bad service. Do you tell the waiter? No – he gave it to you. Do you tell the manager? No – he’ll stick up for his staff. You tell your friends it was crap and post about it on internet forums. Welcome to the Y generation knowledge sharing process.

  33. Disappointed — there are lots of intelligent ex-Big 4 and current Big 4 people who read these blogs. Once these unethical/illegal stories are posted, people can concur (or contest) the reality of these events. I’m willing to bet that it will be the former.

    Things witnessed that once did not make sense will make sense. Leadership will have a harder time spinning lies. Isn’t that what you are really afraid of?

    Big 4 hire straight out of school because it is easier to manipulate the minds of young students (although the Gen Y’s are giving them a run for their money — HA!). If everyone knew the games and can spot the games, it makes it harder for those playing the game.

    As for the ethics line, are you claiming that this is a trusted venue?

    Read the stories, then decide for yourself. With all the partners being kicked out the door, there will be lots of stories.

  34. Disappointed @ 31,

    I too am disappointed I am disappointed in the leadership of the top 4 and other mid-tier firms, who have had every opportunity — and every incentive (except personal) — to make strategic and operational changes, and yet continue to fail to do so. They blame the “crises” on the marketplace, the regulators, the clients, the statf …. anybody and everybody except themselves. They RIF and demote and throw loyal employees to the wolves, in order to protect their compensation and their leadership position. Anybody calling for change — and pointing out the perfectly logical business case for doing so — is silenced in one way or another.

    This blog is the only forum I can find where (a) staff can voice their experiences without fear of retribution, (b) the truth about the failings (and liability exposure) of the audit firms is available without firm-controlled spin, and (c) there is a place for discussion of what should be done. You don’t like Fran’s tone? Fine, create your own blog. Maybe you’ll do better. You can root for the Big 4 firms to survive and even thrive by staying the course.

    The sad truth is that the firms will never change if such change is left in the hands of the entrenched leadership, whose positions (and compensation) is solidly tied to maintaining the status quo. They control the internal messaging, staff (and partner) compensation, and promotability. No, the needed changes will be forced on the firms from the outside, either through regulation or through litigation. Saying that’s the case is not rooting for the firms to fail, it’s pointing out the truth.

    I could rebut most of your other points, but why bother? You would just see my points as more rooting for “companies [sic] to fail.” The fact is, I don’t want the firms to fail, and I don’t believe Fran does either. I want them to hold their leadership teams accountable and get to work generating high quality audits, which would include (for instance) timely “going concern” opinions and accurate confirmations of cash balances.

    — Tenacious T.

  35. @TT Could not have said it better myself.
    Francine

  36. For those betting on PWC being the first to go:

    http://www.themalaysianinsider.com/index.php/malaysia/26338-pka-board-meets-tomorrow-to-indemnify-pwc-

    If PWC’s efforts to avoid being indemnified in this particular case (HA!) is thwarted, your chances of being right may increase.

  37. In post #36, I wrote: “If PWC’s efforts to avoid being indemnified in this particular case (HA!) is thwarted, your chances of being right may increase.”

    I meant this statement to read: If PWC’s efforts to achive indemnity in this particualar case (HA!) is thwarted, your chances of being right may increase.

  38. But Dario Franchitti still races…

  39. @L

    See my tweet. http://twitter.com/retheauditors/statuses/1775219069
    Francine

  40. I’ve been reading with interest (and horror) the sorts of things that occur in the US offices of the Big 4-a lot of it is just unbelievable in the way employees have been treated. Although I don’t think the Australian partnerships of the Big 4 treat staff in such a manner Im not qualified at all as a trainee just out of uni to comment at this stage.

    Though I sure hope that it won’t be EY’s roof crashing on top of my head!

    Keep it up Francine-the truth needs to be told.

  41. re: #12/007CPA

    24 months is certainly MORE than enough time for PwC or EY to go down. It didn’t even take Arthur Andersen LLP 12 months. You have to understand that for every headline scandal (Satyam, AIG, Parmalaat…..) there are literally dozens of other scandals/re-stated earnings/demoted partners going on at any given point in time that don’t make it into the headlines.

    I seriously would not be surprised to see the Big4 implode and Obama nationalize the entire attested-financial-statements industry into a new government entity a la SEC & IRS.

  42. The Big 4 is a monopoly. All public companies are required to have their financial statements certify by auditors. In general, these companies chose one of the Big 4 to perform such task, because using the Big 4 lends some amount of creditability in the market place. If the Big 4 were to fail, it may undermine the integrity of the U.S. financial system. Thus, the government has an incentive to ensure the success of the Big 4.

    Here’s my proposal, why not force the Big 4 to rid itself of any non-attest function, so that these companies can focus solely on attest? Why not remove the stringent non-solicitation and non-compete provisions forced on employees of the Big 4, so that these individuals are free to change firms without being harmed financially. Why not let individuals start their own business and tax consulting firms to create more competition in the market place?

    Fran, in response to your earlier post, the non-competes do hold in many states. Even if they don’t, the Big 4 has enough resources to keep you in litigation and drain your resources. The games they play are not always ethical, but they are big enough to play the games and keep you under.

  43. None of these firms will “fail”, the only reason that AA failed was because it was convicted of a felony (which was overturned later by the Supreme Court) and had to give up their license. I second with “Disappointed” , this blog truly sucks, it’s not really helping anything or anyone but just posing hypothetical what-ifs about Big Four firms and complaining about the process. Throwing out that multi billion dollar company’s are going to fail is sure helpful to your website advertising, it’s almost like a tabloid. People act like the Big Four force corporations into choosing them, but to be honest they are the only ones that can actually do the job, its not a monopoly its business. It’s like asking your local contractor to build a new skyscraper, it’s not going to happen. So because they can’t do it, it means that Gilbane, Pernini and Suffolk have a monopoly? The big four have superior training and resources provided to their staff. I don’t care what you say, but a Big four associate/senior/manager/partner knows multitudes more than their equivalent at a regional firm, its just a fact. The audit model does work and does protect investors, the issue is that you only ever hear about the failures not the successes. I’m not saying there isn’t room for improvement but this nonsense of firms failing, business not sustainable is complete BS. FM, with all this experience you tout, why no solutions? I have NEVER seen a good solution to all these “problems” on this blog, tabloid, whatever you want to call it.

  44. @Anonymous 43

    You assume that it’s impossible for another firm to be convicted of a felony? You must not remember how close KPMG came with tax shelter mess. They were toast, but the government chose to not indict. http://retheauditors.com/2006/11/too-few-to-fail-or-something-more/

    Some dumb fear of a “crisis” if another firm failed. Think that’s their biggest worry now?

    The purpose fo the blog is to inform, raise awareness, and move to action those who are responsible for solutions (and contingency plans.) I have my own ideas. Some of them have been discussed on the blog and many don’t like them. http://retheauditors.com/2009/01/how-will-we-solve-the-financial-crisis-the-answer-is-bigger-than-you-and-i/

    I’m a realist. You can take baby steps. When and if someone who’s responsible for making changes asks my opinion, I’ll give it. Until then you’ll have to be satisfied with more and better information than any mainstream media publication is going to give you about the industry. Or wait for the book.

    Francine

  45. @43 – what have you been drinking? Was it the strawberry twist-ed cool aid? Skyscrapers (cough, cough) … hmmmm … Wasn’t the last song and dance about how easy it is to outsource work to India? Now, its like building skycrapers, and no one else can do it. Gotcha!

    I’ve got a red pencil, some paper, brains, and actual experience. You’ve got new college grads with red pencils, some paper, brains, and no experience. Don’t even try to say that someone reviews their work, because we know that ain’t true. But you do have your leverage model, which serves to add cash into your pocket.

    Your post exemplifies public accounting BS. Well, it works when you are in a room with an underling, using your position to intimidate the other into accepting your view. It doesn’t work so well here.

  46. @43

    And you have exactly the kind of mind the big 4 attracts…ugh…enjoy the kool aid. Without blogs like these, how else will we know about the layoff status of each of the big 4 firms (since firm leadership has decided to can its employees without prior news or forewarning)? How else will we know what stealth, unfair practices are going on? How else will we know the direction this profession is actually heading (or are you going to believe what firm leadership tells you)? And about the firms failing…honestly, no one wishes for the firms to fail. The author of this blog is suggesting the firms to revamp their model. How can a firm truly serve investors when they operate under a profit-making model only meant to further the interests of those in charge? As far as solutions on this blog, have you visited the threads “Hey Big 4! Here’s what I’d do (instead)” and “Here’s what I’d do Part 1 – First, we focus on the client”?. Some possible solutions are talked about in those threads.

    Actually, I don’t mind anyone singing and melodiously chanting the praises of the firms, but if you really support the firms and want to see them thrive…even you must see the apparent flaws of the model and the need to revise it. Otherwise, the firms and everyone affected are going to learn the hard way.

  47. By choosing not to indict KMPG the goverment demonstrated that they won’t indict another Big 4 firm because they don’t want to be blamed for the fallout that would create. They’ll do what they did to KPMG, let the firm off the hook from indictment in exhange for the firm offering up a handful of individual partners as sacrificial lambs. The government gets their trophy conviction and the firm gets to survive. Expect to see a similar scenario play out with PwC and Satyam. A handful of PwC partners will take the heat while firm as a whole avoids indictment.

    And aside from a criminal indictment, which the goverment probably doesn’t have the stomach for after Andersen, the only way I see another Big 4 firm going down would be from some blockbuster lawsuit like the one KPMG is facing from New Century. Could it happen? Possibly, but these firms have armies of lawyers working full time to make sure that never happens. All this talk of the demise of one of the Big 4, let alone all of them, is premature.

  48. @47, you are conveniently forgetting that KPMG’s ability to operate on the tax side was significantly limited until the latter part of 2008. Frankly, no one saw them in the market place until late 2008.

    The only reason anyone heard about them in late 2008 was because they started to low ball engagements. For example, where one of the other 3 would have bid $100/hour for a large scale project, they would bid half.

  49. @ fm 44

    I am an employee of a Big 4 firm. I (like every employee) am responsible for making changes at the firm that I am employed by. I would like to know what your opinions are for improving things.

    I believe that each of us are responsible for improving our own circumstances. All this whining is just incredibly lame. If the grass is so much greener outside of the Big 4, then what are these people doing working here? And I don’t want to hear stories about the economy or how people want to leave but can’t, or how partners are the only ones with power. Its simple… If you don’t like whats going on, change it. If you can’t change it go somewhere else. Don’t wait for someone else to initiate chage.

  50. @49- “All this whining is just incredibly lame. If the grass is so much greener outside of the Big 4, then what are these people doing working here?”

    So incredibly lame, in fact, that you needed to comment on a gorgeous Thursday afternoon! I’ll answer your question – most of them will not work here for long. You can oversimplify and tell yourself they “couldn’t hack it,” but had you considered that some of them might have a point? Or that they post here because they have no faith in leadership? I’m an optimist, and I hope a senior reading this blog will have the guts to speak up when he/she moves up the chain. That said, getting a reformer admitted into the partnership is probably as easy as getting Martha Burke an Augusta membership.

    A culture that pays only lip service to listening, that reinforces bad behavior (eating hours, ignoring problems with the audit, not involving a specialist when we should but don’t want to pay for it, etc.) will reinforce itself, because only so many can live with that type of culture. Changing things is not that easy. Especially when (ahem) some people dismiss you as a whiner.

  51. I guess the correct term would be oligopoly, not monopoly, but the point still stands. With the current model it’s probably not a question of if a firm goes down, but when. Sure there’s going to be a lot of pressure to save them, but at some point their luck (and other people’s patience with non-value added audit opinions) is going to run out. For those who say that the people here don’t present solutions just the problems, people here are seeing a sinking ship. They may not know how to save it or what the best course of action is, but they can at least tell that the water level is rising.

  52. This might be a rant but here it goes…

    @45 “What have you been drinking? Was it the strawberry twist-ed cool aid? Skyscrapers (cough, cough) … hmmmm … Wasn’t the last song and dance about how easy it is to outsource work to India? Now, its like building skyscrapers, and no one else can do it. Gotcha!”

    It’s pretty obvious that you’ve never run a WW engagement, if you think that can be outsourced to India, go and try, and then write a book because I’m sure every Big4 employee in the world would like to know how. I’m sure management would just love to have to deal with calling someone in India to walk through those questionable contract terms or possible adjustment, have you ever called a multinational customer service hot line asking for help? That comment is a joke, on tax returns yes, an audit no. Case closed.

    “iI’ve got a red pencil, some paper, brains, and actual experience. You’ve got new college grads with red pencils, some paper, brains, and no experience. Don’t even try to say that someone reviews their work, because we know that isn’t true. But you do have your leverage model, which serves to add cash into your pocket.”

    You talk about the inexperienced as if they were doing the most highly technical accounting areas, the whole point of AS5 is to nail down the RISK areas, which are then concentrated on by the Partner/Manager/Senior. The associates are stuck doing associate work, which to me the risk of material misstatement isn’t there (don’t comment on cash at Satyam because there aren’t any concrete facts in the case). So yeah they are pencil pushers for the first couple of years they are at a firm, but everyone has a learning curve. Do you have any idea how expensive all experienced hires would be? Do you know how long it would take them to train on an individual firms policies and procedures, systems? Let’s see how much that would add to the cost of an audit, the cost to investors. You say you have experience? In what? How did you get that experience? All from school? This model is not unique to accounting, it’s basically utilized in every single business in the world, you leverage to the less experienced while the more experience plan and conclude. Law, consulting, basically any service model does this.

    “Your post exemplifies public accounting BS. Well, it works when you are in a room with an underling, using your position to intimidate the other into accepting your view. It doesn’t work so well here.”

    Not even worth a comment.

    @ 46 “And you have exactly the kind of mind the big 4 attracts…ugh…enjoy the kool aid. Without blogs like these, how else will we know about the layoff status of each of the big 4 firms (since firm leadership has decided to can its employees without prior news or forewarning)? How else will we know what stealth, unfair practices are going on? How else will we know the direction this profession is actually heading (or are you going to believe what firm leadership tells you)?”

    Who cares about layoffs, that is just business economics, nothing more. If you are laid off at a big 4, you probably deserved it and I have no sympathy for you. Sometimes an industry tanks or a client goes away, but most of the time its because you are a mediocre performer that has skated by this far because they needed you and now they don’t and there’s someone better to take your spot. Less fee’s equals less work, less money to pay staff, thus less staff. I don’t care what you did or didn’t do, the point is that you didn’t make your case clear enough to whoever was above you, your fault, deal with it. These companies have AT WILL employment agreements and have no duty to report to the public about layoffs, so why would they? To help you? You think all these other companies in the news like reporting layoffs? It’s part of the business cycle and the big four is no different. I’ve seen too many people that don’t cut it pass through the ranks and it’s about time they are out on the street. If you count on your firm leadership for your future you need to get a clue, your career is your career.

    P.s The PWC staff in California are a bunch of p*ssies and should all be fired. PwC shouldn’t pay overtime just like they don’t in the rest of the country, I hope they lose their case and have no job at the end of it.

    “The author of this blog is suggesting the firms to revamp their model. How can a firm truly serve investors when they operate under a profit-making model only meant to further the interests of those in charge? As far as solutions on this blog, have you visited the threads “Hey Big 4! Here’s what I’d do (instead)” and “Here’s what I’d do Part 1 – First, we focus on the client”?. Some possible solutions are talked about in those threads.”

    Same argument as wall street/CEO pay. Let’s knock out all the profit in the industry so you can no longer pay talent. So then what do you get? Ohhh yeah you get the government/union employees, a bunch of non motivated employees that are looking for their 9-5 and done. How do you expect to keep a person working 60-70 hours a week with government pay and dismal raises? So let’s extend that audit? Nope that doesn’t work either, because there is a need for timely reporting. I’ve read the posts and quite frankly haven’t been impressed with anything I’ve seen. But I welcome you to lay them out here because I guarantee there is a counter argument for every single one of them. Hence why this is still being discussed and the big four are the big four.

    There is no denying that there are improvements to be made, but those improvements have to do with PEOPLE, because in every single case that is on this blog, its the people that failed not the model. It’s the partner at Enron, Ernie Ebbers, Bernie Madoff, SEC, CEO of Lehman, Satyam CEO, the basics is that all the failures in audit are usually due to human error/greed and fraud, someone going against the model. THERE WILL NEVER BEEN A PERFECT MODEL, so the real question is how to prevent bad apples from ruining the system, after all it is these so called “investors” fail to respond to their proxies and let the greedy SOBs head the companies their retirement is invested in. They are the ones that are voting on directors that vote on the incentive models for executive pay. MAYBE there should be some more investor accountability. Like hey, you voted for this guy (or didn’t respond to your proxy), you demanded the high profits and returns, he took the risks, this is what you get. It’s a viscous circle. If you want control over your money, put it under your mattress or better yet use it to start a blog and write a book.

  53. Sure there’s going to be a lot of pressure to save them, but at some point their luck (and other people’s patience with non-value added audit opinions) is going to run out.

    Maybe that’s the issue, is that people don’t see them as value added. Maybe I should tell the investors of the companies I audit how much revenue I have deferred because of contract terms the company missed or don’t understand, or improper revenue recognition practices and risk seeking rev rec directors. Maybe that will get their attention. There are good things about an audit too, people just don’t see value because it isn’t presented to them. I’m guessing you don’t see the value in your electricity provider either, but I am sure you do when the lights go out.

  54. @51, like moving deck chairs on the Titanic

  55. Francine
    When you say, “It’s fully expected that additional staff cuts will come soon and be of such a volume that it will be hard to hide behind the “didn’t fit with our performance culture” excuse.”, is this a personal opinon or what you hearing from people inside PwC?

  56. Anony @ 52 —

    From my perspective, with roughly a decade in the world we now call the Big 4, you are mistaken in several respects.

    1. “You talk about the inexperienced as if they were doing the most highly technical accounting areas, the whole point of AS5 is to nail down the RISK areas, which are then concentrated on by the Partner/Manager/Senior.”

    AS5 is nothing new. For many years, the audit model has focused on risk areas. Areas perceived to be high risk received more attention and transaction testing, whle areas perceived to be lower risk received less attention. For a while there (late 1990’s), the “risk-based audit approach” was considered a differentiator and marketing tool when the firms competed with each other. As we have come to learn, using a risk-based approach is now the rationale the firms use to cut hours and thus audit fees (including SOX fees). Moreover, as we all know, partners and most managers are too busy juggling multiple engagements, practice development, mandatory meetings/calls, and firm-required learning to actively engage in the details, which is a prerequisite to effective audit management.

    2. “Who cares about layoffs, that is just business economics, nothing more. If you are laid off at a big 4, you probably deserved it and I have no sympathy for you. Sometimes an industry tanks or a client goes away, but most of the time its because you are a mediocre performer that has skated by this far because they needed you and now they don’t and there’s someone better to take your spot. Less fee’s equals less work, less money to pay staff, thus less staff. I don’t care what you did or didn’t do, the point is that you didn’t make your case clear enough to whoever was above you, your fault, deal with it.”

    I would tend to agree with you if I hadn’t personally experienced, and heard about, so many arbitrary cuts that came down from the top in terms of quantity of heads or flat percentage of headcount. I’ve posted about those experiences elsewhere on this blog. Suffice to say that I could not find the logic you articulate within the RIF decisions. Moreover, the overarching driver appeared to be maintenance of (a) senior partner compensation, and (b) senior leadership position(s) within the firms, and was not obviously connected to cost cutting as a prudent management decision. Moreover, if (say) Deloitte and PwC have less money to pay staff, from where do they get the funds to acquire BearingPoint assets — and to add the staff payroll they just acquired? No, I’m afraid you articulate the business case as it should be, not the way it actually is.

    3. “How do you expect to keep a person working 60-70 hours a week with government pay and dismal raises?”

    Well, that’s a really good question. (I’m ignoring your unwarranted slam on all government employees, which is based on ignorance and completely contradicts my first-hand experience.) I wonder if the Big 4 leadership teams ought to be asking themselves that same question, right about now?

    4. “P.s The PWC staff in California are a bunch of p*ssies and should all be fired. PwC shouldn’t pay overtime just like they don’t in the rest of the country, I hope they lose their case and have no job at the end of it.”

    The issue here is not whether the hours should have been worked, because the staff worked the hours. The issue here is whether PwC broke state law. If a judge decides PwC broke the law, then the firm has to pay. Why is that a problem for you?

    Here’s a hypothetical. Let’s say you’re a PwC audit partner in California. How about we call the PwC staff in question “whistleblowers” and we call your attitude “whistleblower retaliation” and we let another judge decide whether your attitude violates the law against such retaliatory practices?

    Or here’s another hypothetical. Let’s say you’re PwC HR or a PwC ethics officer, and a staff person from California uses the firm-approved ethics hotline to voice concerns with potential violations of California employment law. Do you (a) call in an outside attorney to see if the concerns are valid and the firm has any risk exposure from possible litigation, (b) report the call to the Office Managing Partner who takes it into account at year-end reviews, or (c) call the staff “whining p*ssies” and fire them? Answer (b) is typical. Answer (c) is possible. What do you think the effect of any answer other than (a) is on future staff who want to report issues and concerns to the firm ethics hotline, or want to engage in reforming the firm from within?

    5. “There is no denying that there are improvements to be made, but those improvements have to do with PEOPLE, because in every single case that is on this blog, its the people that failed not the model. It’s the partner at Enron, Ernie Ebbers, Bernie Madoff, SEC, CEO of Lehman, Satyam CEO, the basics is that all the failures in audit are usually due to human error/greed and fraud, someone going against the model.”

    Let’s start with the first two in your list. How convenient to blame Andersen’s failures on rogue individuals. It was Duncan’s fault at Enron. It was Ebber’s fault at MCI/Worldcom. Well, sir, you are mistaken in those two instances. At Enron, it was an Andersen leadership override of risk management controls, coupled with decentralizing quality control to the local partnerships. The system failed. At MCI/Worldcom, the external audit team used a “risk-based audit approach” and never, ever, detected the problem — but the internal audit team identified it easily and reported it. The audit failed. There were no rogue actors to point the finger at; the problem in both cases was systemic.

    Let’s skip Madoff, because the jury is still out.

    The SEC is not a person but an entity (a political one at that) and, while I’m sure there are people problems there, the SEC does not actually perform audits of publicly traded companies so it can’t be the rogue actor in your scenario. I guess we could agree that we need to better fund the SEC so that it can more quickly identified audit failures and go after the wrong-doers. Is that your point?

    Lehman has not, to my knowledge, been indicted or convicted, so not sure how to respond to you there about the CEO’s actions or inactions.

    Satyam is your final entry and, while we don’t know everything about that case yet, what we do know is that two PwC audit partners are in jail and cash balance confirmations failed to detect missing funds of a material amount. Looks like an audit failure, but we don’t yet know root cause(s) and don’t know all the facts. I, for one, am withholding judgment until we learn more.

    Granted, no model is perfect. But a model that permits such spectactular failures is one that needs to be fixed. Right now. Fixed by people who do not have a vested interest in maintaining the current model.

    So, to sum up: if you are a troll I give you high marks because I fell for it. But if you are sincere in your positions, I can only shake my head and suggest you start reading books, articles, and media reports other than firm-sponsored or firm-published ones, because the truth is out there. The problem is, you won’t find it from inside your firm.

    — Tenacious T.

  57. @ 55

    It’s what I’m hearing from numerous people all over PwC, in client facing functions and support functions and at high levels. It’s already happened/happening to people I know personally. You have to realize, I get phone calls and email mail and Twitter DMs every day from people that are afraid to post comments (especially from PwC) that are only reflected in my comments and the posts.
    Francine

  58. It feels like this blog breaks into four camps: 1) those who work at the big 4 and are “successful” – accused of drinking the kool-aid 2) those who work at the big 4 and don’t feel like they have a path to being “successful” – they say things like “partners pick favorite people who go with the flow and don’t question their superiors” – while I think that healthy discourse is good for a company and to get actual, tangible change and the absence of such discussion is bad for a company, the truth of the matter is that every company operates this way to some extent. The big 4 is so siloed into “camps” that it exacerbates this issue. 3) those who were fired from the big 4 – this is when you hear how horrible it is and how there are no long term prospects and this is a failed business model, etc. etc. etc….you didn’t work out here, so it’s the business’ fault and not your own. While this is true in some cases, it is a rationalization that everyone does 4) those who never made it into the big 4, either because they never wanted to or couldn’t crack it – we are your competitors, so why would you have anything productive to say about us? Not to say your thoughts don’t contain some nuggets of truth, but your self-serving agenda seeps through your comments. In the event I get fired, I’ll probably drop from camp 1 to camp 3 – it’s just how people are.

    Systemic change from the inside is difficult, but I agree that it needs to occur for the big 4 to be a sustainable model. But to say that the big 4 provides no value to companies or shareholders is bullshit – in some cases, maybe they do go with the flow in order not to lose business, but I’ve been on plenty of projects that have actually identified issues and proactively worked to resolve them, even in the face of management resistance. The key is to hold individual partners accountable, either through the legal system or internally i.e. if someone does something wrong, do not just ship them to corporate and let them sit out their two year ban; instead, fire them and go after some or all of their partner share.

    @anon #52 – yikes – I’m sure I look like a big 4 apologist but my god – they should call you the Kool-Aid Man

  59. @ 53

    I actually do appreciate the value added for my electricity, that’s why I don’t mind paying for it. Do you actually think the majority of companies feel the same, that they don’t mind paying for these audits since they get great value in return?

    I’m sure the companies would feel just fine about not having auditor’s asking a bunch of questions, disturbing their staff, and making a big fuss when a projected error doesn’t fall in line with their expectations or something isn’t fitting exactly into the GAAP framework. They care about their bottom line and that operations are effective and efficient. Investors care about the actual strength and health of a company (both of which audit opinions have not been helping with) so they can eventually get a return on their money.

  60. This blog and some of these comments are painting a very broad stroke over a lot of very good, highly-qualified people. Are some things going wrong? Yes. Can improvements be made? Probably. But the article and a good majority of the comments are downplaying the acts of people working hard everyday just to get by. It makes me feel like we have thousands of people with giant approval stamps, just approving anything that is sent there way and moving on to the next one. When in reality, people are working hard doing the things that they think they should be doing and doing their job effectively. How about we celebrate some of the successes? Nothing buy doom and gloom is depressing, and no one wants to read a depressing blog everyday.

  61. @52
    “Who cares about layoffs, that is just business economics, nothing more. If you are laid off at a big 4, you probably deserved it and I have no sympathy for you. Sometimes an industry tanks or a client goes away, but most of the time its because you are a mediocre performer that has skated by this far because they needed you and now they don’t and there’s someone better to take your spot. Less fee’s equals less work, less money to pay staff, thus less staff. I don’t care what you did or didn’t do, the point is that you didn’t make your case clear enough to whoever was above you, your fault, deal with it. These companies have AT WILL employment agreements and have no duty to report to the public about layoffs, so why would they? To help you? You think all these other companies in the news like reporting layoffs? It’s part of the business cycle and the big four is no different. I’ve seen too many people that don’t cut it pass through the ranks and it’s about time they are out on the street. If you count on your firm leadership for your future you need to get a clue, your career is your career.”

    Yes, everyone that got laid off definitely deserved it. You are 100% correct, because you’ve personally met and watched the performance of everyone that was laid off. I’m glad you set everyone reading this blog straight.

    It’s was pretty bad going to work every day during my last 5 months of employment with the assumption that I really couldn’t trust anyone I passed in the hallway on a daily basis. Prior to those last 5 months, I was consistently rated at the top of employees at my level. It’s really tough performing knowing that there’s probably layoffs coming after the coming busy season, knowing that it’s tough to trust anyone in your workplace, knowing that you probably have to outperform everyone at your level to avoid being part of the layoff.

    There are fewer jobs out there than a normal market, obviously, but considering that I am a CPA and have about 2.5 years at a Big 4 on my resume, yet I personally, as well as recruiters I’m working with, seem to struggle to even get me an interview by presenting my resume, hmmm, maybe I haven’t exactly had the learning experiences that everyone assumes I would have from a Big 4.

    So let me know when you find a blanket statement that is 100% true. I’ll check back and read when you have one.

  62. @60

    I agree with your points to some extent. Those who abuse are not held accountable, while the innocent are thrown to the wolves (like pawns in a chess game) when it suits the abusers’ agenda. You may work hard and do so with integrity, but do you realize it is just a matter of time before you will be put in a compromising position (because of someone else’s errors) and be forced to compromise your integrity? Perhaps at this stage, you are single, have no mortgage payment, have no children, etc. One day you will. Just ensure you are not in such a position when such days comes that you can say “no.” Personally, I would not invest my time and career in these types of organizations. Did you read Fran’s article in the Huffington Post comparing the Big 4 and the mob? As you ascend in a mob like organization, what do you think you’ll have to do to continue to advance?

    The job market is awful. If you are employed, try to stay employed. When the first chance comes to leave and work for a legit organization, you should seriously consider it. Do not let the free meals, sports events, and other lavish activities lead you astray.

  63. @62

    Another thing to consider about working in a “mob” like organization – the more you compromise your integrity, the more they’ve got you. Those above you and beside you know what you’ve done. They’ve got the goods. In the Mafia, once you front a non-legit organization, do the organization a favor, lie to a judge, take the fall, you become captive. Then you have to keep doing it because they know you’ve done it. And they make you do it because you have no choice. What are you going to do? Tell on them now and implicate yourself in past deeds? I don’t think the SEC puts folks in the Witness Protection Program.

    Think about the strip club example that was mentioned in another comment and that I have written about in relation to Enron. Once you go along on these outings, seeing them expensed, billed back to clients, you realize that you are part of that charade. You know something about an illegal billing practice. You were there. You’ve been flipped.

    Maybe you actually entertain clients this way. Because Big 4 partners can expense these things and their clients can’t anymore. So the Big 4 partner pays, expenses it, bills it back to client with their full understanding. An inappropriate use of shareholder money as well as a questionable practice that has gotten other large organizations sued for harassment has been washed clean as snow. You think anyone is going to listen when you suddenly want to fly straight, do the right thing in an audit or a tax return?
    “Wink, wink, nudge, nudge, say no more.”

  64. “I don’t care what you did or didn’t do, the point is that you didn’t make your case clear enough to whoever was above you, your fault, deal with it.”

    After reading that comment I feel like the Jodie Foster character in The Accused.

    I need to take a shower.

  65. This comment is probably too belated but I agree that the business model of PwC stinks. The partners are like puppets. Even they are afraid of voicing out their opinion if it contradicts the leadership. just in my market alone, our “supposed” leader always say we are in this together but utter something that is contrary to what he thinks should be and you will be given a hard time……..very subtly…..but still a hard time…..even when you are a partner.

    24 months for PwC to fail……seems harsh at first but in retrospect……maybe it is indeed a bomb ticking!

  66. [...] a piece in AccountancyAge about the Big Four and whether one would fall. In the process, he took a mild swing at Francine and my bet on the same topic. Jim is blunt and to the point. He says not if but when (as have Francine and [...]

  67. @49 = Big 4 HR Troll. It is amazing to see how many HR people troll this site and respond to the dissenting opinions. Honestly folks anyone and I mean ANYONE who thinks everything at ANY service firm is 100% right and defensible is simply incorrect.

    Bottom line is the economy is making people stick around. Just wait until it picks up and we have viable options. We will not forget how we are being treated and we will leave. The bad news is there will be 50,000 undergrads willint to take our places.

  68. I think Francine is 1/4 right. We need to go further. I believe that all four firms will fail but not how you think. I believe they will be nationalized. Think of all the revenue the government can syphon off of corporations on top of taxation.

    I am already fashioning a nice letter to Mr. Obama, Senators, and Congressmen as we speak regarding the matter. I can’t wait for the announcement!

    Payback is a bitch!

  69. [...] with BDO International, he or any of the others such as Stuart Grant who brought the case against Deloitte International for Parmalat, will have a good template. And he will have poked a hole the size of a Mack truck into the [...]

  70. All this complains and condemnation of the Big 4 is so worrisome.. I just work in one of the Big 4 and got nowhere else to go, mouth to feed etc. If all your wish comes true, it means i will be jobless. True, I definitely dont agree with how the partners treat the employees but its not like a lot of us got choices in these economic times.

  71. re 70: I will agree with you that the news and commentary is very sobering. But keep in mind this isn’t what people “wish.” Rather, people “wish” that the Big 4 would straighten up, fly right, and adopt more sensible business models.

    What people *fear* is that if they do not, then this could have rather adverse consequences, such as lawsuits or a collapse. This will be bad for everyone, so that is why we hope the Big 4 will get their acts together…but if they do not and if the worst comes, it will be terrible for all of us in the public accounting world.

  72. I don’t know much about the other big 4 firms but, as an employee at KPMG, I can definitely say that KPMG half way through digging their graves. In addition to former employees filing a lawsuit against the firm, KPMG is probably the only Big4 firm that’s accumulating a crowd of people that were not promoted last year and/or this year. As it it they laidoff too many people in their Advisory practice (to the extent that their IT Audit practice is almost half its size); once the economy picks up I doubt many people will stick around. I know I won’t; It was my worst decision ever to work for this Big4 firm.

  73. Real reform would start with eliminating the competitive bidding process that currently causes many audits to be underpriced. These audits are then viewed as “loss leaders” that must lead to additional work, or the business model breaks down. If audit fees were derived from a formula that took into account a multitude of factors, but which essentially guaranteed the firm a decent economic return, then this would take a ton of pressure off the audit partners. Combine this carrot with a stick of more vigilent policing of failed audits, and the industry could see a renewal that would be a real win-win, for the big 4 and shareholders.

  74. [...] More important, if as seems likely, PwC is on the hook for massive damages, what about their long term viability? I for one can’t wait to see how PwC spins this one. Jennifer Hughes wrote on the Op-Ed page of [...]

  75. @FM 63

    The way you speak makes it sounds like these policies are firm-wide. In any widespread corporation, there are pockets of poor management and collusion to circumvent documented policies/corporate behavior. How can you make such accusations of firm wide collusion, especially for each and every big 4 company… especially since you are an outsider yourself? Don’t use the, “I’ve get much of my information from my bloggers” because @ Disappointed 58 is exactly right. Most of the people you read from are from Camp 3 and 4 as said so eloquently. Every partner @ big4 firms are not going to strip clubs, nor even 1% of all mangers/partners.

    This is not a defense of big 4, because as with all business they surely have their prob lems… some more than others. I understand that in order to get a following you must be extreme, but really? Use such broad paint strokes to label four completely different firms over entirely different areas into the same bucket? Get serious.

  76. @K-P-M-G

    Perhaps you have not read my bio or many of the posts where I discuss my experience in the Big 4. I’m about as inside as you can get for someone who actually now can talk freely on the outside. I won’t repeat it here. It’s on the “About” page as well as many other places. Suffice to say that your firm, KPMG, as well as BearingPoint and PwC are on my CV as well as senior positions at JP Morgan and Jefferson Wells. It’s rare that someone who has been a Managing Director (I made “partner” after KPMG Consulting became Bearing Point and in the Latin American practice) and has seen a firm like PwC from the highest levels inside as an “internal” internal auditor has the luxury to talk about what they saw, heard, and did in an independent fashion. I am not beholden to the firms, I will never work for them again by choice, and I have nothing to gain from seeing them fail. On the contrary. What I want is for their leadership and those who still want to work for them, to wake up, smell the coffee and recommit to their duty to the public.

    Due to my years of experience and involvement in professional serivces at an executive level, I have many frineds and former colleagues who still work at these firms as partners and professionals and stil talk to me! I have obviously developed many more contacts in and out of the firms who are willing to tell their stories to me and on the blog in guest posts, privately, and in comments. Most bloggers and mainstream media who now write about these subjects get their stories and tips from me, not the other way around.

    In fact, there are so many stories I can not tell on the blog because they are even more “extreme.” I will not tell them until I write the book and have the opportunity to “source” them under those standards. But many of them I experienced myself or were experienced by close friends and former colleagues. There are many more stories in this “naked city.”

    Why or how have I engendered such good fortune?
    By being a straight shooter.
    Francine

  77. A person who left a comment about everyone “deserving to be laid off” sounds very arrogant. From my experience, people like that usually reap their own “benefits” later on. Anyways, I was curious of why would people who are laid off deserve it? Is it because they were not hanging around seniors, managers or partners offices in order to show off and fit in? Is it because they were not constantly kissing their a*? Because from my almost 2 years experience with KPMG, I noticed that this kind of behavior is usually rewarded. This strategy usually works in earning excellent reviews and getting on the clients that you desire. So if you happen to be a normal person, who comes to work to do the job, and become upset by sitting around and billing empty client hours, you may just about deserve to be discarded.

  78. @77 — I don’t believe any “deserves” to be laid off. But let’s think about some different angles to this story. Try these:

    1) it is hard to “fire” someone for cuase. While we live in an “at will” employment world, the truth is that all the litigation in this country makes it really difficult to fire someone. So — when lay offs come about for economic reasons… it is a time when those that might be fired can be let go more easily. These are the people that do not do something blatent such as embezzling… it is the people who do an adequate but not good job, or people that perform OK but have attitude issues.

    2) whenever there are layoffs, the decision on who to let go is ALWAYS made based on performance first. The criteria used to measure performance may be something everyone on this blog will argue about, but it is leadership’s view of performance that is used to make the decisions. Only after the poor performers are gone are other criteria brought into the picture.

    It may not be that anyone deserve to be let go. But it is often (maybe usually) true that those who are let go find a better place in this world and in the end they were the right ones to let go.

  79. POST #10: The Big 4 are scandalous. They would be in trouble if they did basic audit work. They fall into trouble because the hide the fact that they know about fraud and look the other way. Paper shredding is evidence that known misstatments and fraud exists. There’s too much money and not enough independence at this level. There all crooks.

  80. @79 — an amazing generalization. So in your opinion 100% of the B4 partnership are criminals. Do you know 100% of them and have witnessed their crimes? Have you even witnessed one and have irrefutable evidence of the crime? If so, why haven’t you gone to the authorities? Seems to make you equally criminal if that is the case.

  81. Does it seem reasonable that with a good, moral class of recruits that ethical thought could prevail in these cases? You all make it seem like the downfall of the auditing industry is its lack of social responsibility. Schools around the country are teaching ethics courses in their business schools…it’s not too irrational of an idea. Truly making a person understand that it’s more than just what your salary is can certainly impact scores of students. My opinion is: it’s about being able to live with yourself in the long-run. I know I’d have trouble sleeping at night if my employers were acting fraudulently and I was benefiting at the bane of hard-working individuals.

  82. @ 81

    No.

  83. [...] addition to the myriad of suits relating to the Lehman collapse and their Madoff feeder fund exposure, Ernst and Young recently went through a terrible phase [...]

  84. [...] case will be the showcase trial of the new millennium? Which billion dollar case will make it to the jury first? Which case will force legislators and regulators to admit the business model for public [...]

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