Archive for the ‘Pondering’ Category
I’m expecting to hear a lot more, most likely after PCAOB and SEC finish their investigation. If I read this situation correctly, and if public reports are correct, there will be sanctions from SEC against some of the KPMG staff. At that point, the SEC public documents will tell us a lot more.
While we wait, here are two articles that give some general background.
4/17/17 – Francine McKenna at re:The Auditors – KPMG takes its turn with a Big 4-sized scandal – If you’ve been looking for an article with a long time horizon to survey the assorted scandals in the Big 4 world, this post will give you the deep background you want.
Leak from PCAOB to KPMG
Post describes the current information that is public on the leak of inspection engagements from someone at PCAOB to someone at KPMG. Article illustrates there still is not a lot visible in the public realm to answer all the questions that come to mind.
Ms. McKenna quotes my comment earlier on the PCAOB-KPMG leak feeling to me like a red flag of something deeper. She agrees with me.
Each firm has their own round of fiascos
All the firms have had their turn of embarrassing publicity, often with fines or undisclosed settlements.
A minor update on the leak from a now-former PCAOB staffer to a now-former KPMG staffer giving advance notice of audits selected for inspection. Also, many questions come to my mind after thinking about this situation.
Previously mentioned this fiasco yesterday.
CFO.com provides some clarifying info from KPMG’s executive director of media relations and corporate communications: KPMG Replaces Audit Chair in Wake of PCAOB leaks.
The KPMG representative says that KPMG discovered the issue and notified the SEC and PCAOB.
Most significant piece of new information is that the six people who left the firm were fired.
They did not resign.
Why is this significant, at least to me? In the initial reports, I saw verbs used indicating all of the following possibilities for the partner’s departure. They may have:
- resigned (which means sorta’ kinda’ voluntary terminations), or
- were fired (which means the firm unilaterally terminated them), or
- departed (which doesn’t addressed which party made the termination decision; in other words could have been a summary firing, or truly voluntary, or under the proverbial threat of you-can-either-resign-or-I’ll-personally-throw-you-out-the-window).
At first read, I did not analyze which of the above options actually was in play. I put together all the reports I read and assumed (you know what that means) these were all forced resignations, as in “I think it’s time for you to resign.”
Other comments by the PR person confusing me are statements that the fireable offenses were possessing the leaked information or knowing others knew about it.
In the short-term, looks like a shortage is emerging for experience accountants. In the longer term, the massive change surrounding us means we need to keep learning and adapting.
As CPAs, we need to keep learning new skills and focus on things computers can’t do.
1/30/17 – Bill Sheridan at Business Learning Institute of MACPA – Want to beat the machines? Learn to do what they can’t do – Here is a way to think about automation that you might be able to wrap your brain around – How will you adapt then 30% of the work you do is automated, done faster, quicker, cheaper, and more accurately than you can do? Not 99% of what you do, not 10%, but 30%?
I can’t get my arms around audit or tax or consulting completely going away. I just can’t picture that. However, I can imagine 30% or 40% of my work as an auditor becoming completely automated. Actually, I sort of like that idea.
Computers don’t do well at applying professional judgment, courage, empathy, flexibility, and reacting to body language.
Point of article is learn to do those things better.
1/31/17 – Bill Sheridan at Business Learning Institute of MACPA – Change is a choice. So are relevance … and your future – Each of us has a choice. We can keep doing what we are doing. Or we can decide to change and grow and learn new things.
If you casually pay attention to what is going on in the land of Big 4, a world far, far away from most of us in the accounting world, you might have interest in two recent articles from Jim Peterson, pondering the survivability of the huge firms. I will summarize what I think are a few highlights.
2/13 – Jim Peterson at Re:Balance – If the Big Four Went “Ex-advisory” – Deja Vu? Or Worse? – Regulators don’t like the huge consulting practices in the Big 4 and the partners in the Big 4 consulting arms don’t like the constraints on their growth, opportunities, and compensation from being tied to the audit & tax practices.
Article speculates on the impact if the consulting work were to be spun off, as happened back in 1998 through 2001.
- First, a digression into the ethics and audit issues of systemic faking of accounts and coding diesel engines to cheat.
- Next, pondering whether there will be any clawback of the $124M bonuses from the senior executive who managed the retail banking area.
- Finally, two articles describing the DoJ opening a preliminary investigation.
9/14 – Prof. Mike Shaub at Bottom Line Ethics – Plausible deniability and the insulation of upper management – Prof Shaub ponders two fiascos in the news for the deeper ethical issues. Both the Volkswagon diesel engine scheme and the Wells Fargo fake account fiasco reflect poorly not only on the companies and their culture, but the state of ethics in business and our society.
We, collectively, need to grapple with those issues.
The article raises unsettling issues for auditors. Let’s ponder for a moment…How can we detect corporate cultures and entity tone-at-the-top environments which allow building a cheating code into the core operation of a company’s software? How can we detect an environment that incentivizes staff to cheat customers or risk losing their jobs for not hitting sales targets? Those are sobering questions.
I stumbled across the website of the law firm that handled the lawsuit against PwC over their audit of Colonial Bank. The case has been settled for an undisclosed amount.
Rare glimpse inside major audit
To put this into context, this is the biggest case against a CPA firm to actually get into court in a very long time. If I’m understanding the case correctly (a massive assumption!) after briefly browsing the articles, there were 12 days of testimony spread over either 3 or 4 weeks of in-court proceedings.
Phrased another way, this case provides lots of sworn testimony on the details of a major audit disaster. It is rare for outsiders to see the inner workings of an audit that did not go well.