Will a Big 4 firm fail?

#1

There have been so many scandals involving the [[Big 4]] in recent months, consensus is growing that at least one firm our of [[PwC]], [[KPMG]], [[Deloitte]] and [[Ernst & Young]] will fail within the next 12 to 18 months.

Articles like [http://www.accmanpro.com/2009/02/03/im-stunned/ this one] are reasonably worrying!

What do you think?

#2

So if I head for a mid tier firm now which will be easier to get into than a big 4 firm, and then the big four fail and go down, then maybe baker tilly or pkf will be a big four by which time Ill already be working for them and then I can go work for Universal records. Although that assumes all of the big 4 will fail.

#3

Are you saying you want to be an accountant for Universal Records? Universal records are more likely to go bust than anyone!

#4

im trying to marry my passion with my talent and current interest. Im passionate about music, interested in business and finance and studying for a statistics degree. All Ive seen in the news at the moment is that warner brothers is trying to crack bollywood and that was a couple of weeks ago. There’s always EMI, although that’s not been doing too well for a while. Maybe Robbie Williams being back in Britain will help. Warner Brothers, EMI, Disney, 20th Century Fox UK, Warner Music, 19 Entertainment and Universal records train management accountants though. But you probably need a business degree to get into those. Tenon seem to have all the major blockbusters though. Its on their client feedback pages.

#5

Hmmm. But being the accountant at a record label? It’s got to be a bit like being the sensible one at a party.

?!

#6

Absolutely no chance. They are huge businesses with massive turnovers and relatively few liabilities - so the recession won’t bring them down. Equally, I can’t see them succumbing to some massive auditing scandal - there are huge precautions in place now and with the current economic climate everything is being treble checked. If anyone’s vulnerable then it will be the smaller firms.

Anything to the contray I would say was scaremongering.

#7

Remember Arthur Anderson? Mmmm…

More precautions in place, more ways round the precautions. There is always a chance a massive conglomerate will fail - look at IBM 10 years ago. Not putting a downer or anything, but at the moment the climate is pretty volatile…

#8

Exactly. Plus it’s not only the instability of the economy, it’s also the series of major errors that Big 4 firms have been involved in recently: Madoff, Satyam, breaking the rules on selling audit clients M.consultancy services… even debatably the credit crunch itself.

#9

@ Jexxo: I think the point is that regardless of what auditors safeguards auditors put in place now the problems will come of i) existing litigation (e.g. Parmalat for Deloitte) and ii) incompetence / collusion in the case of fraud that has already happened, but that becomes exposed in the coming months (like Madoff and Raju have already been). I don’t think you can simply dismiss the risk of litigation as scaremongering, regardless of how much authors use it to tout their own views on the place of the big four or the audit practice.

The risk to big four firms is clearly shown by Anderson, but when I asked about this at PwC my interviewer said that she thought that the recent scandals didn’t pose the same risk to the global firm as Enron did. So for example although Satyam could bring down Pricewaterhouse in India, the collapse wouldn’t feed through to the US / UK firms. She was an HR person, so couldn’t provide more detail than that and think it was a trickle down message from the upper management. Have they been fiddling with the legal structure of the global firms? Can any of the current big 4 (esp PwC) employees provide more info?

And does know what’s likely to happen to trainees’ contracts, in the event that their firm does get sunk by litigation?

#10

So should we be mentioning this in interviews or pretending that everything’s ok?

#11

It is unlikely that a Big 4 will fail, simply because, after Andersen, regulators are unlikely to allow further concentration of the accounting industry. Accountability is encouraged when big companies feel they have more than a couple of auditing firms to choose from. This is why the Big 4 are often referred to as the “Final 4”.

#12

rawlinsa - it’s not the auditors job to identify fraud. They should be aware of it, and if it’s discovered report it, but they cannnot be held accountable for failing to identify fraud.

#13

Agreed to an extent, but look at the fallout from Madoff - BDO Steinman are being sued under ground of criminal negligiance, and a number of other investors are considering similar action aimed at E&Y, PwC and KPMG. It’s not as cut and dry as all that.

Regardless I don’t think it’s right to simply say a big 4 firm won’t fail because they’ve put a load of safeguards in place - even if collusion in the case of fraud is unlikely in the UK practice I’m concerned about the impact of cases such as Satyam on the UK firm through the global branding / legal structure. Are there any informed opinions on the likely impact of Satyam on PwC Uk out there?

#14

PwC operates almost as seperate companies in different countries. Apart form the name, the link between PwC UK and PwC India, or even USA is not as large as you might think, so it is possible that PwC’s reputation worldwide won’t be too affected by the Indian scandal.

However, there have been so many scandals recently, in so many countries, and this may have knock-on effects worldwide.

#15

@ Jexxo - yes they can. Auditors are there to make sure the processes are fair - fraud is very much not.

Fraud that’s big enough to bring down a large company can be classed as criminal negligence (as mentioned above).

#16

shlobadov- auditors are NOT responsible for detecting fraud - ever heard of the exceptations gap? If not, look it up. Auditors are responsible for detecting material misstatement and since fraud, by nature, is likely to be well hidden auditors will often not pick it up. I would also refer you to the fact that an audit provides ‘reasonable assurance’ - not a 100% cast iron guarentee.

Negligence is a whole different ball game.

Not wishing to sound harsh but please understand what you’re talking about before telling me I’m wrong.

#17

If you are wondering what the possible effects of the scandal in India are on PwC, the following article may give insight, to a certain extent anyway:

#18

Hi , I was wondering whether you know something about it. Did Parmalat have joiint auditors? namely, Grant Thornton and Deloitte? I’ ve been searching for information but cannot find consistent one