"The Defense Department regrets to inform you that your sons are dead because they were stupid.”             Goose to Maverick, Top Gun, 1986  An exam essay for my graduate-level course in Risk Management and Decision-Making, out of this spring’s two catastrophic implosions: Stockton Rush’s submersible Titan, crushed in a nano-second on its descent to take an expensive porthole peek at the disintegrating wreckage of the Titanic, lying 2100 fathoms deep on the floor of the North Atlantic. EY global chief executive Carmine DiSibio’s ..read more

The collapse of Project Everest, the doomed attempt by accounting giant EY to split its consulting and audit practices, leaves a landscape like a medieval battle-field -– strewn with casualties and be-set by looters. The mood is dour –- a retired partner sees “a lot of animosity within the firm,” and an academic says that “short-term turmoil and leadership changes are probably going to happen.” Job cuts were announced for the local firms in the US and the UK. Uneasy lie the heads that wear the crowns: Carmine Di Sibio, EY's global chief executive; UK managing partner Hywel Ball; their princip ..read more

Guest-posted on April 19, with pleasure, on Francine McKenna's sub-stack, The Dig: KPMG, auditor for failed Silicon Valley Bank, has been included as a defendant in a securities fraud case filed April 7 in the federal court in San Francisco — along with directors and officers of the bank and its underwriters Goldman Sachs, Bank of America and Morgan Stanley. It won’t be the last. SVB failed back on March 10, and the only surprise is that it took so long.   KPMG’s clean audit opinion on SVB’s 2022 financial statements was delivered February 24, three weeks before the bank’s closure by the ..read more

No one should be surprised at the canceled split of EY’s audit and consulting practices following a confrontation between the firm’s global and US leaders. But a post-mortem period of recriminations, blame-mongering, and blood-letting is inevitable. That's the lede of my guest post today on the home page of Bloomberg Tax, with thanks for the opportunity: Carmine Di Sibio’s mountain has fallen to a pile of rubble. The aspiration of EY’s global leader to separate the Big Four firm’s audit and consulting practices under the grandiose title of Project Everest was announced on April 11 to have fai ..read more

As I am pleased to discuss today as a guest on Francine McKenna's substack, The Dig -- whether or not EY actually does split, there are big implications for capital markets and professional service providers.   #1 on Billboard’s Hot 100, August 1962   Nine months on since last May’s revelation of EY’s plans to break up its audit and consulting practices into AssureCo and NewCo, freshly reported opposition from its US leadership has thrown the entire project into disarray. Ernst & Young has paused its plan to spin off its consulting arm, bowing to pressure from its U.S. pa ..read more

Guest posted today on Francine McKenna's Substack, The Dig -- a pleasure as always.   KPMG has settled the £ 1.3 bn claim brought against it by the liquidators of its client Carillion, the UK outsourcing behemoth whose spectacular collapse in January 2018 triggered an outpouring of the too-familiar criticism, “Where were the auditors?” Five years on, the entire sorry story is playing yet again to the same tired script. When the long-anticipated claim was officially commenced, in February 2022, the reaction from KPMG’s leadership was the usual attempted bravado and blame-shifting:   ..read more

Updating the syllabus and reading list for my graduate-level course this spring in Risk Management and Decision-Making provides a reminder: the members of the accounting profession are just as susceptible as anyone else to the kinds of bias and error that, if avoided, allow for better performance and results. Here the first of a three-part series I am pleased to have written for Caleb Newquist at Gusto:   “You can’t expect to improve, if you can’t tell whether you’re good or not.” Maxim of consultants in decision-making Trustworthy, high-quality service lies at the heart of the accountan ..read more

“Hic Sunt Dragones”         --Map inscription supposed by medieval cartographers to warn of dangers in uncharted waters   Auditors realizing the hazards of fee-paying business? Hell freezing over!! Perhaps the wintry bomb cyclone of this holiday weekend in the eastern United States signals a convergence of unlikely events. With the spectacular flame-out of Sam Bankman-Fried’s crypto exchange FTX, the Armanino and Prager Metis firms have been sued over their audits of its US and international operations; Mazars pulled its “proof of reserve” report on Bin ..read more

“None of us has a clue.” The late William McDonough, first chairman of the Public Company Accounting Oversight Board in the US, asked in 2005 what the authorities would do in the event of another global accounting network failure. My guests posts this week on Francine McKenna’s substack, The Dig (here, here and here) –- posted on this blog here, here, and today -- update this question, first examined in 2006 and periodically refreshed: What size financial hit could a Big Four accounting network withstand and survive, from litigation damages or an enforcement penalty on the scale of the fatal ..read more

On November 28 I guest-posted on Francine McKenna’s substack, The Dig, the first of two installments to update the inquiry I started back in 2006, as she put it, "to look at the “tipping point” for another Big Four audit firm leaving the playing field -- whether from litigation or a regulatory enforcement action" on the scale that blew up Arthur Andersen in 2002. I posted that piece here yesterday; the second will follow soon. That conversation is not helped by the limited scope and transparency of the financial information made public by the Big Four themselves. For that, a Sidebar on The Di ..read more