KPMG’s family planning needs more than luck
Let's review some lessons from previous KPMG — and the rest of the Big 4 — forays into legal services and other expansions.
“All happy families are alike; each unhappy family is unhappy in its own way.” Leo Tolstoy. Anna Karenina.
Last month Stephen Foley at the Financial Times reported that KPMG US had jumped its final hurdle on the way to getting a license in Arizona to open a law firm.
Foley posted the court order approving the license last week. The license says that licensure of the new legal entity, KPMG Law US, LLC, was granted under the following condition:
KPMG Law US, LLC’s Compliance Lawyer shall conduct semi-annual audits to review the firm’s internal policies and procedures to ensure compliance with Arizona Supreme Court Rule 33.1, ACJA § 7-209, and at the completion of each audit, prepare and retain a written report of the findings.
The legal structure required to meet the various state and federal laws regarding audit firm ownership and auditor independence is an Alternative Business Structure (ABS). An additional condition of the state’s ABS approval is that KPMG Law US, LLC “will not perform legal services for clients for which KPMG LLP or other KPMG member firms conduct financial statement audits or attestations.”
That’s asking a lot!
One advantage of having written about these issues for the last twenty years after having worked in two Big 4 firms before at a P&L level — including KPMG Consulting/Bearing Point where I was the first, and probably still the only ever, female Managing Director in Latin America — is that I’ve gained unique knowledge and exposure regarding how the global audit firms are structured and run.
So this is not my first rodeo.
I had some comments/questions for Foley:
Here’s a gift link to that AFR story.
Here’s another earlier story on the issue from AFR.
I have similar concerns about KPMG’s latest announcement.
My serious concerns, beyond the practical, are premised on having written and documented some really horrendous goofs by KPMG in just the last ten years!
Our teaching case on KPMG/PCAOB scandal has won an award!
Just received this message from the co-leaders of the American Accounting Association’s 2020 Ethics Symposium. I am a full academic member (by virtue of my adjunct role for the MBA program at American University) and a member of its Audit and Public Interest Sections:
Part 1: Where was KPMG while Silicon Valley Bank, and the rest, were teetering?
When Silicon Valley Bank was teetering — in March 2023 the very large "regional" bank was obliterated after a massive deposit run in the space of a week — I thought about writing about how its external auditor, KPMG, is the #1 auditor to banks. I waited instead and was rewarded with not one, not two, but three banks audited by KPMG that went under in short order and another PacWest, that is still going but too much in the news for wrong reasons.
Part 2: What is KPMG's bank audit quality history with the PCAOB and SEC?
In Part 1, I provided background about how, in March 2023, three banks audited by KPMG failed in quick succession and another previous KPMG audit client, Credit Suisse, was forcibly acquired by UBS.
And today this:
The Public Company Accounting Oversight Board (PCAOB) today announced nine settled disciplinary orders sanctioning certain firms from KPMG’s global network for violations of PCAOB rules and standards, including quality control standards.
The firms are KPMG Auditores Independentes Ltda.(PDF) (“KPMG Brazil”), KPMG LLP(PDF) (“KPMG Canada”), KPMG S.p.A.(PDF) (“KPMG Italy”), Somekh Chaikin(PDF) (“KPMG Israel”), KPMG LLP(PDF) (“KPMG UK”), KPMG Cárdenas Dosal, S.C. (PDF)(“KPMG Mexico”), KPMG Samjong Accounting Corp.(PDF) (“KPMG Samjong”), KPMG AG(PDF) (“KPMG Switzerland”), and KPMG (PDF)(“KPMG Australia”).
“It is essential that investors and audit committees know where issuers’ audits are being conducted and by whom so that they can make informed selection and ratification decisions. These violations prevent investors and audit committees from obtaining important information,” said PCAOB Chair Erica Y. Williams.
“Firms must take these obligations seriously and ensure their required communications and reporting are complete and accurate.”
This is not a global network of audit firms, in my opinion, that should be making big, bold moves.
Jim Peterson is also someone else who has been there, done that, and lived to tell about.
Behind the paywall is a guest entry from Jim, an American lawyer whose practice focuses on financial and accountancy related issues, about KPMG’s latest announcement. Jim is a 19-year veteran of Arthur Andersen’s in-house legal group. He launched his column, “Balance Sheet” in the business section of the International Herald Tribune in 2002 – evolving to his blog, “Re:Balance”.