In the WaPo opinion pages yesterday one Duncan Mavin, who got his start in the 90s, says the best way to solve the audit industry’s many conflicts is to kill it altogether. He starts the piece summoning the ghost of Enron, as all writers do when discussing what happens when audit goes wrong. Bringing things […]
The Australian Financial Review reported today that EY had hoped to temporarily share the EY brand name between a new independent consulting firm and its existing auditing firm if a decision is made to split the two businesses into separate entities. But according to a statement this week from SEC acting chief accountant Paul Munter, […]
Australian Financial Review has published slides shown to EY staff in a July global webcast led by Carmine Di Sibio and in them we learn more about EY’s plan — code-named Project Everest — to split off consulting and audit. First up, the why. “The transformative forces reshaping professional services are evolving at unprecedented speed and […]
In comments to Financial Times, EY Global Chairman and CEO Carmine Di Sibio says splitting consulting and audit “would win its consulting division up to $10bn in extra fees by liberating it from conflicts of interest that block partnerships with the world’s largest tech groups.” Those consulting fees are as yet out of EY’s reach […]
There’s a story in the New York Times today about how EY “devised an elaborate arrangement” for nonprescription drugmaker Perrigo to avoid more than $100 million in taxes, an arrangement that was questioned by Perrigo’s then-auditor BDO. Perrigo did what any reasonable tax-avoiding nonprescription drugmaker would do and dropped BDO for EY, hence totally resolving […]
Here’s something that won’t surprise anyone: A study from the University of Missouri found that auditors defer to information provided by management. In the study, nearly 50 senior auditors from major accounting firms were asked to assess the cost of an explosion at a client’s facility based on memos provided by the company’s finance chief. […]
Independence: its complicated. Except it isn’t, really. Audits firms are conflicted because they’re paid by the organizations who they’re supposed to be independent of audit clients. Most people, I think, know this yet choose to ignore it. Fine.
These days, you hear more and more about people juggling multiple projects at once. You know, a day job, the moonlighting gig, a passion project, the "I was just fucking around and it became a thing"1 thing, among others. You would think that accounting firms, known for working people so hard that it renders them […]
Last week the PCAOB approved its 2016 budget and also its "strategic plan" through 2019. That might sound like a more potent sleeping aid than tryptophan, but sometimes board members say interesting bits worth sharing and, today, we have some for you. Each of the board members made pretty benign statements — quibbles about the […]
The SEC has fined Deloitte over $1 million for violating auditor independence rules. The consulting side of the house had a thing going with a trustee, Andrew Boynton, of three funds the firm audited. Deloitte did self-report the violation in 2012, although at that point, the firm had been violation for five years. Sounds like […]
People like getting worked up about auditor independence. For firms, it's a badge of honor. They like pointing to it as a virtue of their business. You know — objectivity, integrity, all that crap. For audit firm critics, picking a fight over independence is easy. All anyone has to say is, "Audit firms are paid by […]
According to a tipster, KPMG distributed this the other day, because apparently sleeping with your coworkers is a serious problem over there.
Another day, another "year in review best of" list. Except this list is actually the "worst of" 2014. It's been an exciting year for auditing. PCAOB inspection rates were some of the worst to date, and then there was that whole thing where an audit partner was banging the Chief Accounting Officer at the client's. […]
The rise of non-audit services offered by accounting firms could threaten the quality and integrity of independent audits, said Steven Harris, a key member of the government’s watchdog agency. Although the Securities and Exchange Commission has limits on the kinds of consulting and advisory work audit firms can perform for their clients, that line may […]
In case you need to be caught up, the controller at Ventas and the audit partner at EY were banging. So Ventas fired their controller, and Ventas fired EY, and EY fired the audit partner. EY also said that putting the sausage in the ham wallet was a flagrant violation of professional standards. Over the […]
We're sharing the following with you not because we think it is a sign that both clients and their auditors have cleaned up their acts but it is a perfect example of how dangerous data can be in the wrong hands. Let's take a look at the results of the work done by Susan Scholz, […]
With all that went down with Ventas and EY1, I needed a little clarification on our independence rules, so I took the initiative to send the following email to the AICPA: Dear AICPA Ethics Hotline, I understand that earlier this month Ernst & Young was fired by Ventas, Inc. due to an inappropriate relationship between […]
Mark O'Connor of Monadnock Research wrote an epic post over at re:The Auditors yesterday on the Big 4's advisory performance for 2013 and the resulting "conflict metrics." The whole post is worth a read but this chart sums things up well. […]
In this day and age of professional service firm trends, it's strange to see an announcement that highlights the audit business in the lead paragraph: [On Monday] Ernst & Young LLP’s Las Vegas office celebrates its 10th anniversary. Since its opening here in 2003, it has become the nation’s largest fully integrated gaming and hospitality practice, […]
If you're like us, you've been anxiously awaiting comment letters on the PCAOB's auditor reporting model proposal. There's nothing better than self-righteous firms penning letters filled with thinly-veiled condescension. Plus, the U.S. Chamber owes us all an honest effort after phoning in their initial response. So far none of the major accounting firms, the AICPA, CAQ, […]
Nearly three years ago we surprised everyone with the news that PwC was rebranding itself. It was big news for awhile and not everyone liked the new look, but just like a website, eventually people get tired of bitching about the changes and they move on. Shortly thereafter, we highlighted an obscure report from Marketing […]
Incredibly, the SEC has done something I didn't think was possible. It has, in its implicit blessing of Herbalife's selection of PwC as auditor, given the Big 4 and other audit firms more leverage in future debates over independence with regard to past non-audit services. And the last thing the Big 4 needs is more […]
~ See update below It seems fitting that PwC would replace KPMG as Herbalife's auditor, doesn't it? On May 21, 2013, the Audit Committee of the Company’s Board of Directors engaged PricewaterhouseCoopers LLP (“PwC”) to serve as its new independent registered public accounting firm to audit the Company’s financial statements for its fiscal year ending […]
The Brits can do whatever they want; Mr. Hanson has a story and he's sticking to it: Having reviewed the comment letters and feedback from the round table panelists and others, it is clear to me that there is little support for mandatory audit firm rotation. As I noted in my statement when we issued the […]
Generally speaking, there are two camps when it comes to the idea of auditor rotation or "term limits" as some like to call it. There is the camp that sees it as an area worth exploring as part of a larger conversation around auditor independence and objectivity. And then there is the camp that does […]
Late yesterday, Sarah Lynch and Dena Aubin at Reuters reported that the SEC was poking around Ernst & Young's lobbying activities on behalf of audit clients. Apparently the investigation has been going on since Reuters first broke the story back in March that the specialized advisory group of Washington Council Ernst & Young was trotting around […]
I love HGTV in fact but not in appearance. No one looks at me and thinks, "I bet that guy TiVos Yard Crashers, Curb Appeal, and House Hunters," but I do. And although I think Hilari was robbed in Design Star All Stars, I never really talk about it with anybody. Fortunately, there is no […]
I haven't had to fill out an "Independence, Integrity, and Objectivity" questionnaire since 2009. Just for kicks, I had a buddy send me a copy of one and I can't even read through it–partly because it's incomprehensible, but mostly because of the rage. Here's the first of 70 [!!!] questions: Have you performed, during the […]
Late on Friday, TransMontaigne Partners, L.P.*, "a terminaling and transportation company," issued a press release announcing that they had successfully filed its 10-K for 2011. Not a big deal really, but reading further one discovers that the company had very recently fired KPMG as its auditor: As previously disclosed, the audit committee of our general partner […]
Not exactly the best way to start a new job: Deloitte said the chief executive of its Dutch arm had stepped down with immediate effect after breaking internal rules on owning stakes in companies whose books are audited by the accountancy firm. Deloitte Netherlands CEO Piet Hein Meeter, who took up the job on Jan. 1, […]
Last fall, we reported that KPMG had issued an internal preservation notice to its employees in regards to "General Electric's Loan Staff Arrangements." As you may remember, this arrangement consisted of KPMG employees being loaned to GE to help supplement the work of the world's best tax law firm. Oh, and KPMG is the auditor […]
You may remember earlier this year when The New York Times broke a little story about General Electric’s tax savvy ways and the best tax law firm the universe had ever seen (aka the GE tax department).
The report�������������������� href=”http://www.goingconcern.com/2011/03/jon-stewart-reacts-to-ges-tax-savviness/”>a few people to get bent out of shape because the Times said GE was enjoying $14.2 billion in profit while “claim[ing] a tax benefit of $3.2 billion.” What that “benefit” really entailed was a mystery but many people jumped to the conclusion that it was a “refund” and ProPublica (possibly a little peeved that they got scooped) tried to set the record straight on the Times story.
Despite all the back and forth, everyone was pissed at GE. The company lost a Twitter joust with Henry Blodget and then a bogus press release went out claiming the company was returning the “refund” of $3.2 billion and the Associated Press ran it. Slightly awkward.
The latest twist comes from a tip we received earlier about a “Preservation Notice” sent to all KPMG employees yesterday from the firm’s Office of General Counsel (“OGC”).
URGENT TARGETED PRESERVATION NOTICE: GENERAL ELECTRIC’S LOAN STAFF ARRANGEMENTS
Please be advised that until further notice from KPMG LLP’s (KPMG or firm) Office of General Counsel (OGC), you are hereby directed to take all steps necessary to preserve and protect any and all documents created or received from January 1, 2008 through the date of this Notice relating or referring to the loaning, assignment or secondment of tax or other professionals to General Electric Company and its direct and indirect subsidiaries, affiliates and divisions (collectively “General Electric’s Loan Staff Arrangements”).
As Klynvedlians know, these preservation notices come out so often that you barely even notice them. When you do notice them is when the partner in charge of your team informs you about it before it hits your inbox. What follows is basically the biggest CYA exercise you’ve ever seen. They roll in giant dumpsters and every last scrap of paper you’ve ever written on gets throw in and eventually it gets shipped off to OGC. Your life doesn’t really change all that much other than you’re not allowed to delete another email EVER. At least that’s how I remember it.
ANYWAY, this notice seems a little different. Why exactly? Here’s a excerpt from McKenna’s post:
In defiance of [Sarbanes-Oxley] provisions, KPMG – GE’s auditor – provides “loaned staff” or staff augmentation to GE’s tax department each year. These “temps” perform tasks that would be otherwise the responsibility of GE staff. Sources tell me KPMG employees working in GE tax have GE email addresses, are supervised by GE managers – there is no KPMG manager or partner on premises – and have access to GE employee facilities. They use GE computers because the software required for their tasks is GE proprietary software.
This type of “secondment” to an audit client is never allowed. KPMG should know better.
YEESH. So any documents going back to January of 2008 that relate or refer to someone being assigned under this allegedly dubious arrangement must be preserved. You don’t have to be John Veihmeyer to know that’s a METRIC ASSTON of documentation. It’s not that GE’s tax needs are seasonal; they’re more like “perpetual” or “infinity times infinity.” A company with the best tax law firm already in house that also has an arrangement with a their auditor to throw a few more people at the problem indicates that they are working on this shit 24/7. For KPMG, it amounts to a nice little revenue stream and it keeps lots tax staff busy throughout the year.
But what caused the notice? That’s the question. Our tipster speculated that the PCAOB and SEC might be up to something but per standard operating procedure, neither will confirm nor deny the existence of any investigation or inquiry. KPMG spokesman George Ledwith did not respond to an email seeking comment.
Like we stated previously, these preservation notices are a dime a dozen but because this one deals with General Electric and presumably their tax compliance it qualifies as outside the norm. If you’re in the know or know of someone in the know or have anything else to add, email us or comment below.
This morning we linked to a Reuters report about the horse race between Deloitte and PwC for the biggest of the Big 4. It reports virtually nothing new that we haven’t discussed here already including Deloitte jumping P. Dubs last year by a whopping $9 million (thanks mostly to keeping their consulting business in house), the