It’s been almost three years since I first broke the story of KPMG’s loaned tax staff arrangement with audit client GE. On January 24 the Securities and Exchange Commission (SEC) announced an $8.2 million settlement with KPMG over violations of auditor-independence rules. The wheels of justice turn very slowly. But the GE case was not one of the three cited as the subject of the enforcement action.
Archive for the ‘Sarbanes-Oxley’ Category
How do the audit firms keep winning the war while losing battles left and right? They use the law and the courts to delay, deter and distract from transparency by settling, and sealing what they can, before the public can find out what silly arguments they often make in their defense.
This is the fourth big insider trading case in the least few years against a senior tenured partner that betrayed the public’s trust. In none of the cases did the firm’s “extensive” and “comprehensive” independence compliance programs spot the behavior or the illegal actions. Stay tuned. There will be much more to this story, I guarantee.
This post about Ernst & Young’s aggressive tax advice to audit client Wal-Mart was originally posted October 29, 2007. It’s worth everyone – I’m talking to you SEC and PCAOB – taking another look at this given Wal-Mart’s new Mexican bribery problems and the SEC investigation of Ernst & Young for tax lobbying to audit clients. (Ernst & Young has been silent and left out of most media discussion about Wal-Mart’s FCPA problems in Mexico and elsewhere.)
My column at American Banker last week focused on the latest PCAOB inspection report for KPMG. We’ve got three more “Big Four” inspections reports to come – Ernst & Young, Deloitte and PwC. Don’t be surprised if you see the same focus on loan loss and repurchase reserves and the same kinds of auditor deficiencies.
You have to go outside of the US to see a trial of a Big Four audit firm to know what I’m talking about. Australia’s Centro case against PwC or Canada’s Nortel case where Deloitte partners testified recently tell you everything you need to know about why the Big Four will settle every time. Rather than have a jury and the public hear and see the pathetic state of the audit profession, its inability to stop executives who want to cheat, and its unwillingness to acknowledge liability as a firm when it screws up, the firms will reach into their seemingly bottomless pockets and pay up.
There are still many unanswered questions about how and why the financial crisis frauds occurred. New frauds, such as the Chinese reverse merger frauds, took advantage of a public listing loophole that the SEC and auditors missed. All these investor losses occurred under the supposedly watchful eyes of auditors, who are paid dearly to protect shareholders but in many cases are either complicit, incompetent, or both.
Here’s the speech and slides I used for the AAA Public Interest Conference on April 1-2 and Top X list of possible research topics for accounting and audit academics interested in public policy.
I’ll be at the American Accounting Association Midwest Conference in Columbus, Ohio May 12-14. I’m on a panel to discuss the audit firm model and will take questions at a separate session. Hope to see you there.
If you would like me to speak for your group, please email me at email@example.com
Sarbanes-Oxley (SOx) made law what is best practice for all public companies or companies that issue public debt. That includes “smaller” companies.
Given the pressures on costs and the longstanding ties some finance, audit, and accounting executives have with the accounting firms, it is not surprising that the weakening of the independence commitment may come from the companies themselves. What’s the downside for them? The potential for scrutiny by corporate governance experts and journalists? You can’t argue with a recession. And in the event of an accounting scandal or restatement, plaintiff’s lawyers will have an uphill battle to penetrate the impenetrable auditor liability shields and caps.
What’s lost in all of this discussion of efficiency and cost cutting?
Independence protects shareholder’s interests.