We're A Lot Closer to "Big 3" Than "Big 5"

Reuters informs us that the Big 4 firms will likely continue their dominance of the audit market and thus perpetuate their very own version of the "vampire squid wrapped around the face of humanity"

From the sounds of the piece, at least it appears that the EU sees the problem that four firms dominating the market won't cut it:

The current financial crisis makes it vital that we have a truly sustainable audit market, and the consultation results published today provide valuable insight into problematic issues," EU Internal Market Commissioner Charlie McCreevy said in a statement.

So we'll interpret the phrase "truly sustainable audit market" as "four firms is not enough" because the "current financial crisis" could very well claim a victim that has KwaterhouseDeloitteYoung in the name. The Big 4 is cool with a little more competition but, not surprisingly, their solution is "let us do what we want do and if we mess up, things will still be cool":

"The existence of a liability cap which is proportionate to audit fees would remove one of the potential barriers to mid-tier companies wanting to penetrate the large-tier market," said Jeremy Jennings, chairman of the European Contact Group, which represents the world's six biggest auditors.

Proportionate to audit fees? Is this guy kidding? So even if a firm were botch the audit for every single audit client, they'd still be in business? The investment value lost in cases like Enron, WorldCom, et al. dwarfed the audit fees paid by those companies.

Liability caps will do very little except reduce their professional accountability and thus, make the large firms more bullet-proof and strengthen the stranglehold further. Same song and dance from the Big 4.

SIGH. There seems to be little hope for this particular oligopoly to foster any new competition until it's far too late. And with the piling litigation, often due to auditor complacency, that day of reckoning may be coming very soon.

Auditor ownership not top competition priority-EU [Reuters] Sphere: Related Content

Any KPMG Employees Working Today?

Earlier in the week we let you know that Radio Station employees were given a mandatory 5 day weekend.

Thought we'd check on all you today to make sure that none of you are working...and if you are this is your opp to vent.

Any other Big 4 firms handing mandatory 5 day weekends? Let us know! Sphere: Related Content

There are Many of You Out There That Will Take Exception with This

From Clusterstock:

You might think that with all these layoffs, employers are working their current employees to the bone. Nope. Full-time workers have never worked shorter work weeks, according to the just-released unemployment report:

Weekly Hours (Establishment Survey Data)

In June, the average workweek for production and nonsupervisory
workers on private nonfarm payrolls fell by 0.1 hour to 33.0 hours--the
lowest level on record for the series, which began in 1964. The manu-
facturing workweek rose by 0.1 hour to 39.5 hours, and factory overtime
was unchanged at 2.8 hours. (emphasis theirs)

Okay, we know there people out there that are at least doubling this amount of hours right now (read: Big 4 tax associates). Plus Q2 reviews are coming up so audit teams are def going to start packing sleeping bags. Are you out there? Let us know how many hours you're putting in! Show this unemployment data who's doing the heavy lifting out there.

Employed Workers Have Never Worked Less [Clusterstock] Sphere: Related Content

We Know What You're Doing PwC and We Don't Like it

A little more salt on the wound known as Satyam for PwC, courtesy of Re: The Auditors (RTA). We posted yesterday that PwC really didn't audit Satyam, that it was a P. Dub associate firm, Lovelock & Lewes.

RTA makes the excellent point that the confusion about who is actually doing what is no accident:

The fact that no one except those closest to it understand the structure is not by default but by design. It is designed to accomplish just exactly what they are trying to accomplish now - to weasel out of responsibility and liability when something goes wrong. But it’s not unique to India or PwC. In some countries, New Zealand for example, there may be many firms operating under the KPMG New Zealand umbrella but they are no more aligned financially or strategically than Christchurch is with Tokyo.

So the firms' international entity structure is confusing precisely because they know that when the shit hits the fan, they can always jump behind corporate plausible deniability. This is exactly what happened in the BDO case (as RTA notes) via the "wedding planner" defense.

The firms have international presence, marketing themselves as international companies, yet hide behind an enigmatic entity structure to save their asses when they mess up.

Well played...One jury already bought it. P. Dubya better be saying their prayers that they're just as lucky...

PwC Global Board: “Risk And Quality Top Priorities” [Re: The Auditors] Sphere: Related Content

KPMG Requiring Mandatory PTO

Word around the campfire is that all KPMG employees are being required to take PTO on Thursday of this week and next Monday. Friday is the observed holiday so employees will have a nice five day weekend. Hoo-RAH!

This has been a common cost cutting method for many firms, large and small and is probably immensely popular with employees. Except, of course, for you lovers of all things work out there. They can't stop you losers from working from home!

Anyone else out there from other firms being required to take a long weekend? Any Radio Station employees being told to ignore the mandatory PTO days? It has happened before...Let us know the sitch. Sphere: Related Content

Follow-up on Big 4 Lawsuits Re: Overtime

Tramp has obtained an announcement made to KPMG employees regarding overtime lawsuits, originally mentioned here two weeks ago.

Quoting the announcement:

These lawsuits were filed by several of our former professional employees ("Plaintiffs") and allege that all of KPMG's associates and senior associates were improperly classified as salaried, or "exempt" employees (who do not receive overtime pay), and that they instead should have been classified as "non-exempt" employees and paid overtime. Among other things, the Plaintiffs are seeking back overtime pay and other monetary awards.

[We] want you to know that we work very hard to be an employer of choice and believe we have classified and paid our professional employees appropriately. Consequently, we have denied the claims asserted in the lawsuits, and we are actively engaged in defending against them.

The Plaintiffs are seeking to certify the cases as class actions, on behalf of all current and former associates and senior associates nationwide, as well as within certain specified states. If the courts grant the Plaintiffs' request that the cases be certified as class actions, then some of you may be potential class members, in which case you would have the right, at a future date, to determine whether you want to participate in the cases.

The "work very hard to be an employer of choice" part sounds sincere desperate because, oh, I don't know, there's lots of KPMG employees out there that were/are being treated like two-bit whores. Tramp predicts that this class action thing will get the go ahead and lots of people will be getting calls from big shot law firms.

So far, Tramp has not received any communicado on lawsuits affecting the other Big 4, so please pass along anything you may know.
Sphere: Related Content

Will the Financial Crisis Finally Let the Mid-Tier Firms Be Cool?

Face it mid-tier firms, the Big 4 are the popular kids at school. They get the hottest girls, they win prom king, they barely talk to you even though you sit right next to them in calculus. If they do talk to you it's after they snap your ass with a towel while snarking, "Out of the way, dork."

Oh, how financial calamity can turn the tables:

Big Four auditors have come under fire after the banking meltdown and, with jittery investors looking to shore themselves up, there may be serious weight added to the dissenting voices calling for a break-up.

Coupled with recent pressure from [Members of Parliament] to restrict firms’ non-audit services, the mid-tier could be well-positioned to make genuine inroads into the top flight.

At last! After years of being ignored, the mid-tier firms will have to be taken seriously. The financial meltdown will surely get us invited to the coolest parties and perhaps to first base with the likes of [enter prestigious client here].

Not so fast dweebs, "One [Financial Director is quoted]: ‘To talk the talk, you’ve got to walk the walk,’ when asked why he rejected the idea of a mid-tier auditor."

That might be the worst explanation for anything, ever, but it does point out that those big sexy clients are probably out of reach of the mid-tier firms, well, just because you're not in the cool kids club.

Conditions right for mid-tier assault on the FTSE monopoly [AccountancyAge] Sphere: Related Content

Breaking: Employees Suing Big 4 On Overtime

Tramp has learned from several sources that class action lawsuits are being filed on the behalf of current and former employees of all the Big 4 firms because of overtime hours worked by professionals without additional compensation.

Reportedly, no action will be taken against current employees that participate in the case.

Updates will be posted as details emerge. Sphere: Related Content

Audit Partners are Doing Favors That We Need to Know About

Despite a near overall financial apocalypse, audit fees went UP in 2008, according to a survey done by Financial Executives Research Foundation.

Oh, and public companies still like KPwaterhouseDeloitteYoungMG to do their audits and then they don't like to switch. 86% of those polled use one of the Big 4 and have been with the same firm on average for 15.9 years.

Which begs the question: what kind of favors are these firms doing in order to keep these clients for so long and when the whole economy implodes, still have the audacity to ask for more money? Is it common knowledge among the mega-huge, everyone is too big fail (except Lehman) corporate community that the Big 4 have low moral character and will pretty much do anything to keep clients?

If so, where are the pictures? And, I mean the good ones. I want New Jersey hookers, corporate executive socks hiked up pictures. You know the type.

Despite downturn, audit fees rose in 2008 - survey [Reuters]

Sphere: Related Content

Charlie Munger Thinks Accountants Suck, Greenspan is Bonkers, and Doesn't Want Any Democrat but Barack Obama to be President Right Now

The Stanford Lawyer has a kick ass interview with Charlie Munger where he gives his opinion on several topics. Here's the best quote regarding the accounting profession:

"I would argue that the majority of horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They've sold out, and they don't even realize that they've sold out." (Emphasis mine)

Are you listening, KPDeloitteErnstCoopersMG?

I definitely recommend reading the whole thing for those of you who are interested. Those of you who aren't, all you need to know is that this guy has been Warren Buffet's right hand man since the Johnson Administration (literally) and last time I checked, WB is still doing ok.

Munger on Phony Accounting, Cultural Decay, and Derivatives [naked capitalism]

Q&A: Legal Matters with Charles T. Munger [Stanford Lawyer] Sphere: Related Content

No, Seriously, the Financial Crisis is Really Killing Us.

So, it's Sunday evening and I'm unwinding and I come across an article in the Denver Business Journal that lists seven industries that are thriving. To my surprise (or perhaps not) "CPA's" is on the list, "Average revenues at accounting firms grew by 10.2 percent in the past year, making the accounting industry among the top 20 in the country by sales growth."

Ok, I think to myself, this is disturbing primarily because of all the cost cutting (i.e. primarily firing people) the FB4 firms are doing. This certainly goes towards disproving the premise that the firms are putting out that they are hurting because of the economic shitshow. This got me curious to see what the FYE 2008 FB4 numbers were... TA-DAH:

KPMG - Up 14.5% to $22.7B (FYE 9/30)
Deloitte - Up 18.6% to $27B FY (FYE 5/31)
PWC - Up 14% to $28B (FYE 6/30)
E&Y -Up 16% to $24.5B (FYE 6/30)

SHEESH, looks like they're really hurting, right? Oh, and get that nonsense about the recession not starting until late in 2008 right the hell out. The Wall St. Journal, as early as July 2008 was wondering if the recession had started in 2007. Keep in mind that this was before AIG, Lehman, et al.

Knowing that I could get some sane information from re: The Auditors, I revisited a post from last month to find out what the hell the rationalization is for these cuts heading into FYE 2009. Whole thing here and my musings here.

Per Francine, there's all kind of excuses out there from the ripples from the bank fiascoes, to over-hiring, to off-shoring being a complete and utter failure. But does anyone believe for a nano-second that these firms are going put out results in the coming months with anything less than double digit growth in revenues? I suppose they could sandbag the numbers to make it look like thing are tough but would anyone (especially their clients) really believe it?

Isn't it about time these firms started issuing annual reports so we can know the whole story about the businesses? It's not like there's an investment strategy to be stolen here, long hours + lots of accountants = lots of money.

AND, let's not forget, dude, that if firms would present ALL information rather than just revenue numbers, maybe they could legitimately rationalize cost cutting rather than be like, "oh well, just trust us, it's rough out there".

When the FYE 2009 numbers come out, no one is going to feel bad for the FB4 because all they're going to see is that there was double digit revenue growth for the umpteenth year in a row. If costs were out of control, no one will know because the firms don't release that data. More of the "trust us, we're getting killed".

I'll wrap this up by bitterly reminding everyone that the FB4 CEO's like talking about how we, er, you have the responsibility to serve the "capital markets" (whatever the hell that means). If the capital markets are being served, shouldn't they know how well you're doing and maybe, just maybe, that there might be a smidgen of conflict of interest?

I guess that it might be kind of awk if the firms told everyone that they are making metric asstons of money being the "watchdog" and basically showing everyone that the watchdog is blind, missing half its teeth, and is three-legged.

Report: 7 thriving industries in the U.S. [Denver Business Journal] Sphere: Related Content

The Resistence to IFRS Evangelism

FB4 firms like "hot topics" which translates into, "potential ways for making boatloads of cash".

Sarbanes Oxley was a hot topic. Now it's part of the routine. The Firms Madoff made off with their boatloads and now that all clients are all SarbOx legit, they're saying, "We'd like to revisit our audit fee" or in the UK, "lower your bloody audit fees you greedy wankers".

The new moneymaker is IFRS conversion. The push to conform to international standards came courtesy of the crack squad of regulators at the SEC under Bush 43. The target date was 2011, which everyone should have known was a joke since it took 12 years to roll out IAS 39.

Before my trip to the gallows at KPMG, trainings on IFRS were getting more and more common. Partners were talking to their clients early and often about getting all over this IFRS convergence like stink on a monkey.

The word on the street is that partners are drooling over the thought of engagement teams billing 40 hour weekends to cope with the complexities of IFRS conversion.

But now there are some problems. The pesky FASB is saying it'll be 10-15 years before convergence will occur. The new gang at the SEC isn't pushing IFRS like its predecessors.

Plus, CFO's in the States aren't too keen on the idea of getting this pulled off in 2 years, they know that the FB4 are going to bleed them out for the convergence, and, oh, there's talk about a financial meltdown or something that's making things complicated.

Not to worry though, FB4 partners are a crafty bunch. There will no doubt be more scheming to be had. They don't really have a choice, as one of my friends put it, "partners will take a free lunch these days".

Herz: No Convergence for 10-15 Years [CFO]

CFOs on IFRS: Forget about It [CFO] Sphere: Related Content

The Stank of Desperation

So the FB4 is begging, nay, pleading for protection from the British government because a "blockbuster lawsuit" could put one of them right next to Arthur Andersen in the auditor graveyard.

Ok, so we've all gotten used to large companies asking the government for things but this new low in corporate pan handling is especially pathetic.

"[A lawsuit] could trigger the collapse of the audit market and cause chaos for business". Ok, so now the audit firms think they are too big important to fail?

So the usual suspects provided flimsy pieces of paper that state that they performed procedures (on a test basis) to ensure that the financial statements were in accordance with GAAP. Oh, and that small bit about how there was nothing materially misstated on said financial statements.

Welllllll, it turns out some pretty important stuff wasn't in accordance with GAAP and the financial statements were materially misstated when the super-duper auditors said they were a-ok. Now they want the government to protect them so they can continue to suck at their jobs.

Appears reasonable.

Auditors Not Trying To Wiggle Off The Hook. Really. [re: The Auditors] Sphere: Related Content

I Would Suggest Euthanasia for the Big 4 but Waterboarding Seems More Appropriate

re: The Auditors has a great summation for the methods that the FB4 are using to save money since they're playing the pity poor us card in this "tough economy". Francine also goes into why they're cutting the costs that they are cutting and how and why it's basically the complete wrong course of action

She also eludes to the ubiquitous "Stockholm Syndrome" that exists within the FB4. This is right on the money. I suffered from this myself at various points in my tenure at the Radio Station.

It's such a relief when your personal paranoia is vindicated...

Hey Big 4! If I Were You, Here’s What I’d Do (Instead…) [re: The Auditors] Sphere: Related Content

This Could Potentially Replace Guiding Light as the New Daytime Drama

Reuters and Financial Week are both reporting on New Century's (or what's left of it) lawsuit against KPMG that was filed today in Los Angeles and New York. The plaintiffs are seeking $1 Billion in damages.

One highlight mentioned is an excerpt from an email that the engagement partner sent to a specialist working on the engagement, “As far as I am concerned, we are done. The client thinks we are done. All we are going to do is piss everybody off.”

This was sent the night before the 10-K was to be issued. This is not a surprising statement or situation for anyone that has worked in a FB4 atmosphere. Integrity at its best people.

Not sure what's going to come of this but you'll be sure to get updates.

KPMG faces fallout from New Century [Financial Week]

KPMG hit with lawsuit over New Century collapse [Reuters] Sphere: Related Content

Where I Attempt to Liken the Final Big 4 Accounting Firms to Wiseguys

A compelling case for likening the FB4 to the Mafia is made by Francine McKenna over at the Huffington Post.

I won't rehash the details for you all, Francine writes a great post. What I will do is speculate on which firm would be which wiseguy? Disclosure: For this particular post, all families are fair game and I won't regulate myself to one particular family, crew, TV show, or movie (but as you might expect, the Sopranos are easiest to choose from).

KPMG - Fredo Corleone - Weakest and most annoying of its particular kind. Obedient and clumsy.

Deloitte - Paulie Walnuts - Again, obedient but has a psychotic side. All in all not too bright though.

Ernst & Young - "Lefty" Ruggiero - past its prime but loyal to the family. Ultimately, not smart enough to realize when being duped.

PricewaterhouseCoopers - Johnny Sack - Hungry for power and is ultimately the boss. In the end something internal will kill it.

Ridiculous? Bad examples? Unfair? One-sided? OF COURSE.

The Button-Down Mafia: How the Public Accounting Firms Run a Racket on Investors and Thrive While Their Clients Fail [The Huffington Post via re: The Auditors] Sphere: Related Content

Above All, We Act with Complete Arrogance

KPMG, being the bastion of integrity that it is, just hired the most recent Chief Auditor and Director of Professional Standards for the PCAOB, per re: The Auditors.

Turns out he was with the Radio Station prior to the PCAOB and is now returning to his firm in glory. This type of story doesn't get much press outside of the CPA media (CFO, Journal of Accountancy, etc.), which is say, a crappy point of view anyway, since they are all in the tank for the "profession".

Looking Out For Me, Myself, And I [re: The Auditors] Sphere: Related Content

Great Job = Discount on a Membership at Costco

My previous employer, the one that sounds like a radio station (rhymes w/ "MG"), made a lot of noise of being an "Employer of Choice". This pretty much entailed giving unique benefits like discounts on big box store memberships or allowing employees to cut out of work at three on Fridays during the summer (as client demands would allow, which basically meant that no one that was working for a client would leave early).

The Radio Station was OBSESSED with being the best Final BIG 4 firm. The general idea was to create the perception that people loved working there because of all these great "perks". I suppose if you removed the providing of professional services aspect from the business model, then it could possibly work that way.

As you might expect, these initiatives basically did not apply to the majority of the professionals working there. Turns out, this is NOT the strategy a professional services company should employ when they want to be the "best" according to a CFO magazine article that came out today that centers around a speech given by a human resources professor from Rutgers. Read here.

The nail is hit on the head with these two paragraphs (emphasis mine):

"HR wants to treat most employees the same way, and they spend considerable time trying to defend or fix poor performers, taking on the St. Bernard role," [Professor Beatty] said. "Low turnover isn't necessarily a good thing. Think about where you might want to disinvest."

Human resources is also behind what Beatty called the "silly" idea that a company should try to be the "employer of choice." If you are the employer of choice, he asked rhetorically, who's going to be applying for your jobs? "Everybody and their dog's brother," he said. "You want people who are excited, enthused, and understand how to contribute to what you do, as opposed to those who simply want to find a good place to hide out."

This pretty much sums up the experience that I had working at this "great place to work". It was fairly obvious that many of the people at this firm were not the "best" as I and many of my colleagues would define them. I don't have an ivy league degree or anything but if you find yourself constantly explaining simple analyses performed to your supervising manager, you might conclude that you may be working for someone far less intelligent than yourself.

Furthermore, the individuals that were often the most intelligent and able to contribute constructively were looked upon as people who weren't willing to tow the company line and that made noise when obvious mismanagement was occurring or incorrect procedures were being applied. It was fairly clear that the management group wanted sheep in the firm that wouldn't question the status quo and would simply follow orders. As I recall, there was quite a bit of that going on at Nuremberg... Sphere: Related Content