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When Mark O’Conner of Monadnock Research asked for my initial reaction to the deal I had to admit I hadn’t thought much about it. Diamond Technology, a true-blue Chicago born and bred company, is small potatoes. They never achieved the billion dollar revenue goals the founder had envisioned. PwC has potentially bought a pig in a poke.
It’s no coincidence that settlements were announced less than a week apart for both New Century and Countrywide. As two of the earliest subprime failures, all parties were probably anxious to clear some clutter and make room for other matters. But with no trials, the truth about KPMG’s role in both Countrywide and New Century will be buried.
How many others of the financial crisis bankruptcies, bailouts, takeovers and nationalizations were the subject of a bankruptcy examiner’s report, complete with juicy details about the auditors’ role?
None.
But now there’s Washington Mutual.
Leaders of public companies, like policemen or firemen that do a job for money, also sign up for a public duty. As stewards of a public company, the CEO and CFO’s job is not a reward for years of service, an entitlement after achieving career objectives but a responsibility and honor that should be earned every day by setting an example for all those who work under them.
The auditors serve the role of independent watchdog, guardian of shareholders’ interests in the capital markets. Their relationship to management should be adversarial – not friendly, cozy and comfortable. They are hired and fired by the Board, also supposedly independent. Given the way auditors are compensated, directly by the companies they judge, they have a very difficult job. Regulators are there to guard the guardians and are supposed to make sure they’re doing that job.
The SEC did not issue a press release for this rule. Chairman Shapiro did not mention it in her July 27 speech that discussed actions the SEC was taking in response to the passage of the financial regulatory reform bill. It was not an explicit requirement of the Supreme Court decision regarding the PCAOB.
So where did it come from?
Why is it necessary?
What we have here, in my opinion, is a clear and obvious attempt by the SEC to placate the largest registered firms, the ones who still strongly resent being under the thumb of an “independent” rather than a peer regulator.
In a move that was too big to hide, PricewaterhouseCoopers on Thursday cut between 500-800 professionals from its internal IT organization. Multiple sources are telling me the number is closer to 800. In any event, PwC admits, in an unprecedented press release, that there is no severance offered because they are giving professionals until the end of the year to find other jobs.
In the latest scandal at AIG, we’ve seen PwC and AIG’s most senior executives, former CEO Sullivan and CFO Bensinger, attempt to divert attention from their failures. PwC wants to have their cake and eat it too. They initially claimed to have been duped by AIG management including Cassano but now take credit as heroes for eventually forcing AIG to disclose a material weakness in the valuation process. Isn’t it about time to call a spade a spade?
The global money center banks are masters at managing financial reporting. Regulators repeatedly feign surprise at balance sheet sleight of hand, prestidigitation at the expert level intended to buy time until the banks can grow out of the black hole that bubble lending put them in. They announce their quarterly results, with all the details – they don’t even try to hide them anymore – and they’re ignored or the con is traded on for short term profits. We’ve yet to see the auditors called to testify to explain their role in blessing fraudulent bank balance sheet accounting.
Isn’t it about time?
If any doubts remained that PricewaterhouseCoopers International Limited, the international global network “coordinating” firm, does the bidding of its largest and most powerful member firms – primarily PwC US and PwC UK – the latest “restructuring” in India should dispel them. PwC US and PwC UK want to be closer to their money.
Joseph Cassano, the former head of AIG’s Financial Products Group, testified for the Financial Crisis Inquiry Commission. PricewaterhouseCoopers has been playing consigliere to AIG for many, many years and continues to be allowed to act as their “independent” auditor in spite of the fact that they have been sued by AIG’s shareholders and are now turning their own partners against their client in court.
If PwC was informed about Cassano’s activities, then perhaps the SEC, the PCAOB and Department of Justice should finally turn their attention towards the audit firm. PwC has $312 million reasons to go along with the charade of independence.
 Francine McKenna (@retheauditors) has more than twenty years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad. For more info, click the "About" page link at the bottom of this page. |
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