KPMG - too big to fail?

If we felt like taking power away from companies over choosing their own auditors, one idea might be for all public companies that require an audit to be required to give some independent entity yearly funding to create a pool of funds from which accounting firms would be paid after bidding to the entity for audit jobs with companies. That is, based on bids, the independent entity would assign (or at least give the opportunity) for certain ("winning") audit companies to audit firms. This way, the firms would not be paid directly by their clients. It would be as if the company had simply paid a general "auditing" fee to the auditing industry and had no choice really who they would receive as an auditor. I guess one problem with this idea is that the company is still in control because the company could always no renew the contract or perhaps ask the independent board for a new contract after firing the firm that was assigned to them initially. That's probably the fatal flaw in this idea that makes it not worth much, although perhaps with some tweeking some variation of this idea could work.

I think it's ok for the accounting firms to be paid by the same management they are auditing. The problem comes in where the firm can't seem to be really independent from the company they are auditing. They have provided tax and/or accounting advice to that company and then go and audit their own suggestions. In one case, a CPA firm was paid 2 million dollars a week for advice and then performed the audit. That is not independence!

A CPA firm must be totally independent both in form and in fact in order to perform an audit. The Sarbanes-Oxley Act will, I think, go a long way toward this end after it is fully implemented by all companies being audited. Management will have to sign off as to the internal control system within the company. The lack of an internal control system within many companies is what has lead to their being able to accomplish some of the fraudulent things that have been going on within many of them. Now that this law has been passed and implemented, management and auditing firms will be held more closely liable for lapses in judgment.

Wayne Brasch

I don't think any CPA firm is too big to fail especially if they continue to assign people to audits who have no regard nor concern about the gravity of the job they are doing. Many times, no senior member of the firm ever appears at the client's business as they should. Audits and auditors are supposed to be properly supervised-many are not. A lot of times the auditors don't want to upset management by saying or implying that any thing is wrong, so they ignore it and hope for the best.

The above is a sad pronouncement about auditors and audits in general, but I'm afraid it fits many-not all- of them.

Wayne Brasch

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See, the KPMG did learn from Anderson. Now they hire pr flacks to wage non-conventional warfare in the press.

Nothing is too big to fall. Just the fall will be more disastrous. The only difference

Nothing is too big to fail. Just the failure will be more disastrous.

Choose the best answer :-)

If KPMG disappears, I don't believe they will be missed. I find the concept of "disastrous" to be a non starter. Everybody is replaceable.

I suppose there are a number of those within who might have a somewhat different opinion on being missed... :)

If any accounting firm, regardless of size or name, can't do the job properly and legally in compliance with generally accepted auditing standards, they should go down.

Wayne Brasch

Exactly what I say.

I agree to your statement without reservation.