These days I leave the flaying of the Big Four to Francine McKenna but today I can’t help but comment on her analysis of the KPMG case involving Independent Insurance Group that saw the firm and partner Andrew Sayers fined £500,000 with £1.15 million in costs. Rather than dwell on her excellent analysis I’d prefer to concentrate on the consequences and other issues:
We’ve seen the sanctions handed down by the SEC lately and they are also fairly minimal in comparison with the economic loss visited on the shareholders, employees and other stakeholders by these failures. Does a finding by a Tribunal in the UK mean this firm and the auditor can be sued? Or is that what the liability caps are intended for?
As far as I know, there is nothing in current law to stop aggrieved shareholders from suing. Given the scale of the case (Francine is quoting Director of Finance online):
The effect of this was that for a premium of £77 million, Independent would be able to turn a LOSS of £105 million into a PROFIT of £22 million.
The Tribunal pointed out that this was too good to be true. The company underwriting the stop loss insurance appeared certain to lose money. It gave rise to an obvious suspicion that there may be more to the stop loss insurance than KPMG was being told.
and the fact that Sayer made basic errors that a junior would be hard pressed to replicate, shareholders would be strongly advised to seeking remedies. It is staggering that the Tirbunal didn’t recognize the scale of loss, but the costs award suggests to me that KPMG put up one heck of a fight. Even so, the total is a fleabite on partner earnings, barely the equivalent of petty cash if KPMG adopts its usual policy of farming these kinds of loss around the partners as a whole.
But there is more. I recently noticed that the UKs Top 50 firms have banded together to create:
Accounting IT Directors Forum to improve information sharing.
Spearheaded by Jim Greenfield, national IT director for PKF, the forum will let IT directors meet face to face to discuss technology topics affecting the accountancy profession.
The forum is born of IT directors’ frustration with the lack of knowledge sharing in the industry…
Although the May meeting was attended by the top 30 firms and the next meeting in July has attracted interest among the top 50, the Big Four firms have been notable only by their absence.
‘The problem with the Big Four is identifying the right people in the right department to attend,’ he said.
What the heck? Apart from the fact they’ve cranked prices for SarBox compliance which hasn’t exactly been the thrill of the year and requires systems compliance testing, AIT is saying the Big 4 can’t find the right people? The broader question – do they have the right people? Following Enron, the Big 4 pretty much lost their IT expertise as a result of the break up of the consulting operations. By all accounts they’ve not recovered.
So what do we have? The Big Four, brand leaders routinely ending up under Francine’s microscope for one or other cock up and incapable of fielding a single representative on IT issues. Plenty of cause for celebration there then.
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