The big 4 accounting firms have to deal with large accounting scandals every year. It’s hard to keep track of all the accounting scandals, but that’s what the purpose of this page is.

We’ve tracked the largest accounting scandals of 2018 below.

There are different categories of scandals involving the big 4. Some of the general categories are below.

Accounting/Auditing Scandals – Accounting or auditing scandals typically involve a big 4 client that is having financial difficulties or accounting errors. These typically involve in investors suing the big 4 accounting firms. The investors typically allege that they relied on the financial statements of the big 4 client that the big 4 said were good.

Independence scandals – These type of scandals involve situations where big 4 professionals aren’t independent from their clients.

Ethical scandals – this involves big 4 professionals doing unethical things in the workplace including terrible things like sexual harassment. Other things that fall into this category are things like paying women and diverse people less.

KPMG Accounting Scandals 2018

Carillion audit

The Carillion scandal for KPMG was one of the largest scandals of 2018 if not the biggest audit scandal.

Carillion was one of the largest construction companies in the UK before they went under. They experienced financial issues in 2017 and went into bankruptcy in early 2018.

kpmg signed off on financial in march of 2016, so how could the firm have gone of the rails by 2017. Work found to be unacceptable according to UK watchdog in June 2018 as a result of their Carillion Audit.

KPMG PCAOB Leak Scandal

Type of scandal – ethical scandal

The PCAOB is the regulator of the big 4 accounting firms in the United States. It is important that the PCAOB selection process is random so that the big 4 can’t try to change workpapers ahead of the PCAOB audits. In this case, KPMG was given a heads up as to what audits were going to be selected by the PCAOB.

Former kpmg accountants were charged by the sec in January of 2018 for their role in leaking information to fellow KPMGers after leaving the PCAOB.

Gupta scandal

Type of scandal – ethical scandal

the gupta scandal involved government corruption. The gupta family was a family involved in political corruption in south Africa. KPMG was their auditors and was obviously conflicted because the partners on the account were very closely tied with the gupta family. KPMG faced many negative side effects as a result of their association with the scandal. They were investigated by the south African charted accountant organization.

South Africa chartered accountants probe. Kpmg set to audit own staff in april of 2018.

As a result of the Gupta scandal, KPMG lost a lot of clients in South Africa. Barclays Africa was one of these clients. They dropped KPMG as their auditor in May 2018.

Big 4 Foreign Affiliate scandal

Type of scandal – ethical scandal

KPMG Deloitte and BDO are set pay fines over their foreign affiliates trying to circumvent PCAOB probes.

VBS Bank Accounting Scandal

Type of scandal – accounting scandal

VBS Bank audit – vbs bank was placed under curatorship in 2018. KPMG partners turned out to have financial interests in the bank which made it worse for KPMG. Not only did they not spot the fraud, but they turned out to not be independent from the bank. KPMG should have also reported accounting irregularities but they did not.

Kpmg hong kong fraud

Type of scandal – auditing scandal and ethical scandal

China medical technologies defrauded investors of over $400 million. Some of these investors were in the U.S.

This was a case where the U.S. wanted to issue penalties against the U.S. listed subs of China medical technologies. KPMG Hong Kong did not comply with orders to provide workpapers. KPMG has said that they do not have the working papers.

KPMG was later freed from the suit by a judge in Massachusetts.

GE investors try to get rid of KPMG as auditor

Type of scandal – auditing scandal

After a huge write down by GE in 2018 relating to long term care insurance liabilities, investors called for a change of auditors. KPMG has been GE’s auditors for a long time.

Project management advisor to grenfell

Type of scandal – independence issue

Grenfell tower was a large building in London, UK, where a large fire occurred in 2017.  KPMG stepped down from that in january 2018. They stepped down due to a conflice of interest with a contractor that provided flammable material that may have caused the fire. They provided auditing services to Celotex which was the company that provided the potentially flammable material that was used in Grenfell tower.

Deloitte Accounting Scandals 2018

Steinhoff accounting Scandal

Type of scandal – auditing scandal

Deloitte was the auditor of Steinhoff. Steinhoff encountered financial troubles. Steinhoff investors sued deloitte in 2018.

Steinhoff audit issues were found by Deloitte in Decmeber of 2017. Investigations started in February2018.

Deloitte was fired as the auditor of Steinhoff in 2018.

Big 4 Affiliate Scandal

Type of scandal – auditing scandal

Fined by the PCAOB for work done by their foreign affiliates. $99k to PCAOB.

Carillion Scandal

Type of scandal – ethical scandal

Deloitte also got involved in the Carillion bankruptcy. They made over 10 million dollars off of Carillion over the years that Carillion was not performing well from a financial perspective, and they were called out for it.

Taylor Bean Scandal Settlement

Type of scandal – auditing scandal

Deloitte paid $150 million over failed mortgage lender. They failed to uncover errors by Taylor Bean. Deloitte was the auditor from 2002 to 2008. Deloitte settled to avoid litigation.

Gender Pay Gap

Type of scandal – ethical scandal

In the UK, the big 4 accounting firms have to disclose pay gaps between men and women. Deloitte Gender pay gap jumps to 43%. This means that women earn 43% less than men in the UK.

Ernst & Young Accounting Scandals 2018

EY Australia Sexual Harassment

Type of scandal – ethical scandal

Australia Sexual harassment allegations were made in February of 2018. Ey’s Senior Managing partner in Australia was accused of sexual harassment.

EY US Sexual Harassment

Type of scandal – ethical scandal

Ey faces sexual harassment complaint in april of 2018. The harassment occurred in a resort in Orlando in 2015. Ey later settled with the female partner who said she was groped.

PwC Accounting Scandals 2018

PwC India Scandal

Type of scandal – auditing scandal

Pwc banned from auditing in India for 2 years. Relates to their audit of Satyam. Satyam was one of India’s leading software providers. The company’s founder overstated profits by $1 billion in 2009. The securities and exchange board of india was the governing body that placed the ban on pwc india.

Colonial Bank Scandal

Type of scandal – auditing scandal

Pwc was found to be liable to the FDIC regarding their audit of Colonial bnak. PwC faced the largest ever accounting malpractice verdict of $625 million

Carillion Scandal

Type of scandal – ethical scandal

Pwc was accused of feasting on the carcass of Carillion. They were one of the big 4 accounting firms that charged Carillion millions of dollars all while Carillion was going down. They earned 21 million pounds all while Carillion was failing.

In September 2018, additional information came out that said PwC was paid 356 pounds per hour for the Carillion scandal.

PwC also managed the insolvency of Carillion and earned 50 million while doing so which also caused controversy.

Gender pay gap scandal

Type of scandal – ethical scandal

PwC had the highest gender pay gap of the big 4 in the Uk of 43.8%

Privatbank audit

Type of scandal – auditing scandal

Pwc was the auditor of Private bank from 2013-2015. Privatbank was nationalized in 2016 due to financial difficulties. They supposedly had many insider loans that weren’t paid back. Privatbank had a capital shortfall of $5.5 billion.

Ukraine Privatbank sued PwC for $3 billion dollars.

BHS Audit

Type of scandal – auditing scandal

PwC was the auditor of BHS.

BHS was a collapsed department store, and the PwC partner on the account faced a 15 year ban. The UK FRC launched an investigation in 2016. PwC was fined 6.5 million pounds as a result of the company’s collapse. They faced a 10 million pound fine, but the fine was reduced after PwC agreed to settle.

Grant Thornton

Type of Scandal – Conflict of Interest

Grant Thornton was also wrapped up in wrongdoing as far as accounting scandals go. They aren’t a big 4 accounting firm but they had to pay the largest fine by a non big 4 firm this year. They had to pay 4 million pounds in the UK in fines. They were fined by the FRC due to conflicts of interest at their audits of Nichols PLC and Univeristy of Stanford.

How can you get a job at PwC? Well turns out PwC outlined how to do this in a CNBC post.

This article was about how to get an entry level job at pwc and what pwc expects from their candidates. We’ll go over what the article spoke about and we’ll also have some analysis to help add additional color to the big 4 hiring process.

The article started off by saying that Pwc will hire 4,000 to 5,000 interns this year.

It doesn’t necessarily say where those interns will be. Whether it is in the U.S. or globally. The article then dives into what the application process is like and highlights how the application process can be an arduous journey for many candidates.

PwC Application Process

They specifically cover the five step journey in the application process in some countries for PwC like the UK

1. The first step of this five step process is a numerical reasoning test which is an aptitude test,
2. Then there is a video interview where you respond to pre-screening questions
3. Then candidates attend a full day event at an assessment center or in a pwc office where you conduct group activites, take exams and conduct additional interviews
4. then you conduct two one-on-one interviews with a manager and a partner
5. Final step is an official offer

That is the process in many places in Europe, but this process obviously differs depending on where you apply. The more prestigious the school you apply from, the easier the process will be for you. The less well-known your school is, the harder the process will be for you.

Another key point for getting a job at PwC, is to meet PwC’s standards for being a pwc professional according to this cnbc article.

What is a PwC Professional?

There are five key attributes to a pwc professional and they are

1. Business acumen
2. Global acumen
3. Technical capabilities
4. Relationship skills
5. And whole leadership

What do all of those things mean?

Business Acumen

Business acumen basically means what is your knowledge of business and ability to succeed in business. This also includes your knowledge of the industry you are interested in. Obviously when you are just a candidate it would be hard to understand whether you know a lot about your industry.

Global Acumen

Second is global acumen. This is your knowledge of what is going on in the world. A great example of this would be tax reform. Another example would be the changing political environment around the world to that of a more populist world. Additionally there are currently a lot of talk about trade wars around the world. This area is just any knowledge that you might have about the changing geopolitical environment and its potential impact on business. In an interview you don’t want to get too international in this area though because the people you are interviewing with will still likely be focused more on what is impacting their clients on a local basis.

Technical Capabilities

The third tier of the pwc business professional is technical capabilities. This means that you are technical in your area of expertise. That would be accounting principles if you are in audit and tax law and regulations if you are in tax. PwC expects you to be technical in your area of expertise. I wouldn’t worry about this one too much if you are just looking for an entry level position or internship at the big 4. Just make sure that you understand the basics of whatever your field of expertise is before going into your interview.

Relationship Skills

The next part of the pwc professional that pwc wants to see from their people is relationship skills. This means that you need to be able to maintain and grow professional relationships. You need to have some stories ready about how you’ve grown and utilized relationships professionally. Think of times you’ve used your network or your parents network to advance yourself in a professional manner. You can also speak about clubs that you’ve joined while in school or outside of school. We cover some other areas that you can speak about in our interview book and our interview course.

Leadership

The last area that pwc wants to see from their professionals is whole leadership. This is the catch all area for pwc. This also includes your ability to lead others in the way that a big 4 accounting firm expects. This means leading by example but what is leading by example. This means leading by whatever pwc values at that point. If that is leading by showing you know how to balance work and life, then that is what you need to show that you are capable of doing. Most people are going to see this as just being a leader though. They aren’t going to read into it much so don’t worry about that. In order to fulfill this requirement, be ready to show confidence in your communication and willingness to lead others. Once you get the job, you will need to show that you can be a leader in your group and an ability to delegate effectively to those beneath you.

PwC Digital Fitness

Other than understanding pwc’s expectations of a pwc professional the CNBC article goes on to speak about how they expect their candidates to be digitally fit. PwC says that they expect their candidates to know about the latest technologies and some technologies they speak about are technologies regarding data analysis and visualization such as tableau and alteryx. Tableau is a data visualization tool and alteryx is a data analysis and data manipulation tool. It is no longer good enough to know only excel. You need to learn about these alternative technologies to impress the big 4. I suggest that you find out more about these tools on each companies website and watch youtube videos. Write down some key points about some interesting technologies before going into any big 4 interview because it matters a lot in this current environment. What’s good about PwC is that they tell you the technologies that they are invested in so make sure to learn about those. We will most likely do in depth posts about both of those technologies on our website or on our patreon page so make sure to visit both of those sites and subscribe to our patreon page for unique premium content.

In conclusion, pwc has described what they want from an ideal candidate. If you are interviewing with them, you should have a good understanding of what is needed based on this. You will have to go through a tough application process, then you will have to go through a tough interview. PwC expects their candidates to be well rounded in 5 key areas and they also expect them to be digitally fit. To learn more about any of these areas make sure to check out all of our resources in the shownotes to this podcast.

There are several issues for the big 4 brought about by the Facebook Cambridge analytica privacy scandal.

In that scandal Cambridge analytica was utilizing private information of Facebook users to try and influence the U.S. presidential election. This should have been caught by Facebook because they were supposed to have strong controls following a settlement with the FTC in 2011.

Facebook settled with the FTC in 2011 over misrepresenting their privacy program back then. Facebook told users that they could keep their information on the social network private but that information was being shared with third parties.

As part of that settlement, Facebook was

• barred from making misrepresentations about the privacy or security of consumers’ personal information;
• required to obtain consumers’ affirmative express consent before enacting changes that override their privacy preferences;
• required to prevent anyone from accessing a user’s material more than 30 days after the user has deleted his or her account;
• required to establish and maintain a comprehensive privacy program designed to address privacy risks associated with the development and management of new and existing products and services, and to protect the privacy and confidentiality of consumers’ information; and
• required, within 180 days, and every two years after that for the next 20 years, to obtain independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order, and to ensure that the privacy of consumers’ information is protected.

Facebook obviously did not comply with these requirements when their users information was accessed and utilized by Cambridge Analytica.

The last one of the audits of the Facebook privacy program required by the FTC was performed by PwC. Pwc performed an independent report on Facebook’s privacy program dated from February 12, 2015 to February 11, 2017

During the time period covered by the report it is thought that Cambridge Analytica was likely using facebook users information, so it appears that PwC missed this huge mistake during their audit.

There are a number of questions that PwC’s sign off brings up.

1. Are 3^rd party audits truly independent?

No matter how many caveats PwC brings up in their report, it was expected that they would be able to detect the very lapses that happened in the Cambridge Analytica scandal. One of the reasons they might not have caught the lapses in the privacy program is because they don’t want to rock the boat.

They don’t want to tell a huge client like facebook that they might be doing something wrong.

There is also a question of whether auditors can go into an audit with an independent lens where they are earning millions of dollars. Are they blinded by dollar signs when auditing?

2. Should the SEC trust the Big 4?

People are questioning why the FTC didn’t conduct the audit themselves. The public was failed by the FTC because it was the FTC’s job to enforce their penalties from the previous Facebook settlement.

Instead they farmed it out to an accounting firm that received money for the work but did not perform sufficient work to catch the errors. Is this also true of the Securities and Exchange Commission for trusting the big 4 to catch errors in public company financial statements too?

3. Can The Big 4 Catch The Majority of Material Errors or Weaknesses In Controls

With all the recent accounting scandals and now this privacy scandal, it appears that the big 4 are caught up in a series of huge mistakes that should have been caught by them. The magnitude of the scandals are huge. To the point where your average citizen could catch them if they were hired to perform the work let alone a professional auditor.

In all these scenarios, the big 4 are being paid millions of dollars for their expertise. Even with all their expertise they are missing extremely material mistakes.

This leaves the question as to whether the big 4 have the technical expertise to be auditing large complex companies. That applies to both auditing financial statements and other areas. I definitely have a huge issue with them claiming they can audit a privacy program.

Should the big 4 be engaged to an audit a privacy? What do the big 4 or pwc know about privacy programs and standards at a large social networking firm?

Facebook probably chose an accounting firm like PwC because they have experience with auditing and sampling.

PwC approached the audit like they would have approached any audit. They took some samples and extrapolated that against the whole population, but does PwC know how to design and audit a privacy program or similar technological areas.

I think this brings questions up about the big 4 for future work such as auditing blockchains and auditing cyber security breaches.

Large companies and clients should raise more questions before hiring the big 4 to perform tasks other than auditing financial statements.

Let us know your thoughts in the comments below.

PwC has worked extensively with a firm called REWIND to come up with a new virtual reality solution. This new solution that PwC built with REWIND will help PwC’s client help understand how disruption could impact their organization.

Pricewaterhousecoopers using VR to help clients see the future

PwC and REWIND built a futuristic virtual reality city where clients can see the ways emerging technologies like robotics, drones and climate change might impact their future.

What is Disruption and Why do the Big 4 Speak about it so much?

Disruption for those of you that don’t know is this catch all term in business that can mean anything from political change to climate change to emerging technologies. This is a key term in the professional services  field because the bigger the disruptions that you are able to think of, the more products and services you can sell to clients to prepare them for those disruptions. You might also hear these things called megatrends.

PwC and all of the big 4 are constantly pitching disruption ideas and megatrends to their clients so that their clients by fancy new services in anticipiation and fear of those disruptions. For example, the big 4 have been selling automation technology for years to accounting departments telling them that everyone is automating. Not all clients believed this and many of them did not buy into it. Now the big 4 have moved away from automation and now they are selling robotics and artificial intelligence. Again it’s the clients with the biggest budgets and fears that buy into this stuff, but I guarantee you every organization out there does not buy into it. There are still plenty of clients out there that don’t even have automation. There are many large public companies that still consolidate their financials using good old Microsoft excel. If you only listen to the big 4 though, you’d think every organization had a team of robots powered by artificial intelligence preparing their financial statements.

In other accounting scandal news in April 2018, PwC faces the largest auditor malpractice verdict ever in the United States.

This verdict might be handed down in the lawsuit of the FDIC vs PwC. The case relates to Colonial Bank which we’ve covered heavily on this podcast. Colonial Bank is the bank that collapsed in Florida and has had PwC tangled up in lawsuits over the past couple of years. Colonial Bank and their affiliate Taylor Bean went bankrupt and both the trustees of those bankruptcies and the FDIC have been after PwC ever since.

The FDIC could be awarded up to $625 million in the lawsuit. The verdict depends on what the Judge Barbara Rothstein determines is reasonable. The FDIC had to make large payouts related to Colonial bank going under, so they are just trying to recover a portion of what they had to pay out. $22 billion of the bank’s deposits were sold to BB&T which is another bank. It is estimated that the FDIC had to pay out in excess of $2 billion to depositors of Colonial bank.

PwC estimates that they will only have to pay out $306 million, but even that amount would be one of the largest payouts ever for malpractice by an accounting firm. This award comes from the decision by a Barbara Rothstein in late 2017 that PwC was negligent in their audit of Colonial bank in 2009.

What does this mean for Pricewaterhousecoopers and the big 4 accounting firms

Taylor Bean and Colonial Bank went bankrupt in the last recession in 2009, and PwC is still facing the ramifications of that 10 years later. Since it appears that we might be facing another downturn in the U.S. soon, PwC needs to be aware that some of their clients might be facing hard times. They need to audit with more tenacity than they are used too otherwise they will be facing large malpractice verdicts again.

Ukraine’s largest bank has filed a lawsuit against PwC in early April 2018. This is another lawsuit that came from the Privatbank nationalization in 2016.

This relates to audits that PwC conducted in 2013-2015.

The bank says that they have suffered due to the extensive breaches by PwC of their responsibilities to audit the financial statements of the bank.

PwC did not detect insider lending at Privatbank

Over 95% of the loans that Privatbank issued went to former owners of the banks or affiliates, so it was really an insider lending scandal. The biggest thing is that this fraud took place over several years so it should have been spotted by a competent auditor at some point. Additionally, these loans that Privatbank was issuing to insiders didn’t have any collateral. In some cases, PwC had assessed high values to collateral related to these loans that did not appear to exist

The bank had to be privatized in order to keep it running. There was a $5.6 billion hole in the bank’s capital.

The claim is that PwC should have been able to spot this insider lending going on. It’s obviously very important to have a diverse lending portfolio to not expose a bank to one huge risk.

What does this Privatbank lawsuit mean for PwC

This lawsuit means that PwC faces another existential crisis in an overseas branch of their firm. Will this threaten PwC’s existence. No it won’t because the risk related to this will be contained to the Ukraine due to PwC’s structure. However, this might reach PwC’s branches in the European Union because there have already been talks in the EU and the Uk of breaking up the big 4 and forcing some competition so that audits can have higher quality. All this does is add fuel to the fire of regulators that want to break the big 4 up.

There wasn’t too much news about the big 4 this week other than a few controversies that popped up so I wanted to speak about an article that was recently released in Quartz spoke about a millennial uprising at the big 4 accounting firm Pricewaterhousecoopers. This article was later picked up by Fortune.com

Quartz is a blog that speaks about management at large corporations and how to become a better manager.

The article starts out speaking about what the culture “used to” be like at PwC. According to the Quartz article, the culture at PwC used to be the standard cliché of the big 4 accountant working around the clock.

Candidates for big 4 jobs at colleges just knew that that’s how life had to be at the accounting firms. Candidates knew that you had to sacrifice thousands of hours of your life to succeed at the big 4, but everything changed for PwC in 2013 when 2/3 of PwC’s workforce became millennials.

This is when this millennial generation started complaining more about all those wasted hours according to the article. This time PwC was more willing to listen though because they were losing employees at historic levels and they were also losing college recruits.

The millennial workforce was ok with working long hours but they just wanted purpose and they wanted flexibility to work from where they wanted.

From my point of view, I agree with this because working at the big 4 is frustrating. So much of working at the big 4 is just showing and being present and waiting on workpapers or waiting in for a partner to sign off on an audit step, a tax return or a project.

The baby boomers used to be glad to have a job, so they might have been more willing to stay late for no reason. Millennials aren’t as willing because they know the way people work is changing. Millennials also value family time and working out more, so we want to get out and do those fun things that we enjoy instead of wasting time in a cubicle for our boss to get comfortable over some intangible deliverable.

According to the article, PwC tried to blame it on millennials being different, but when they actually questioned their workforce they found that everyone wanted the same thing. This included baby boomer.

This is another obvious observation to me.

Of course everyone rather spend time being with their family and enjoying their hobbies than in a cubicle or office all day. I won’t say everyone because I have encountered a few people out there that truly enjoying doing accounting and tax, but most people I’ve interacted with over my career are in accounting because it is a stable job. Not because working 80 hours a week is extremely fulfilling. Especially at the associate level where you don’t necessarily interact with the client and see their reaction to your work product. It’s hard getting a sense of fulfillment without seeing a client’s positive reaction to something you put together.

New worklife flexibility plan at Pricewaterhousecoopers

The article goes on to explain the various initiatives that PwC put in place to combat this terrible image they had internally and externally at college campuses. One of those initiatives was a flexibility plan. This flexibility meant that people could work for home when it fit their engagement and that they could leave early on Fridays. Most of the big 4 have some kind of flexibility policy at this point in time.

PwC Implements Discover Retreat for Newly Promoted Senior Associates

Another benefit that Pricewaterhousecoopers rolled out was a 4 day retreat for their newly promoted senior associates. The article says this retreat was rolled out in 2013, but it was actually rolled out in 2011 so quartz needs to check their.

The retreat is called discover. Since PwC rolled this out for newly hired senior associates, this means that most of those attending were in their early 20’s like 24 or 25. They were basically all millennials. This is a key datapoint because there is a lot of sharing that goes on at Discover. Millennials are more willing to open up about who they are than baby boomers are according to Quartz.

The objective of this retreat is to show the young people at pwc that the organization cares about them, but it is also to help the new senior associates learn tactics to help them last in their careers by teaching them mindfulness techniques and other well being techniques.

There is a lot of fun at these retreats because they have things like yoga and rock climbing.

There is also a lot of openness and vulnerability at these retreats.

The retreats start out with a ‘Who Am I’ story where these new senior associates try to figure out who they are by telling stories about themselves in a group setting. There is a lot of crying and vulnerability in these sessions.

Overall the sessions are meant to help young people figure out who they are, network with other professionals and begin to think about how to make their professional lives more sustainable.

Work well, Be well

The article also speaks about PwC’s policy around work well be well which is a health project that PwC signed up for through the advice of another consulting firm.

Can I just say something here. I always find it hilarious in the big 4, that they hire external consultants when they have thousands of internal consultants. I don’t doubt that their internal consultants make more by billing clients, but not every consultant at PwC is working at 100% capacity. I know that not every consultant at PwC is also well versed in physical fitness and mindfulness. However, if you utilized associates with free time to surf the web and come up with a well being program, I think they would be able to come up with something interesting that the big 4 could implement.

The outside consulting firm that PwC utilized is named the Energy project. The belief of the energy project is that companies see better results when their employees manage their time better and avoid burnout. They believe that productivity drops off after 50 hours of working a week. Many other firms like Goldman Sachs and law firms have not adopted this mentality and still demand 70 hour weeks from their employees. The energy project has worked with other large companies like Google, Facebook, Coke and Pfizer.

PwC has partnered with the Energy project and adopted the work well be well approach to helping employees balance their time and adopt a more healthy lifestyle by working out and utilizing mindfulness.

Conclusion

What does this mean. I think all these things being adopted by PwC are great news and it makes Pricewaterhousecoopers sound like the Disneyland of the big 4 accounting firms, but I would caution people from reading too much into this article. At the end of the day, PwC and the other big 4 firms are still a client service business set around deadlines. I believe this post was a bit of corporate blogging. Corporate blogging is where large corporations use other companies platforms like Quartz to portray their message so that it looks like an independent story.

I think PwC helped facilitate the writing of this story to increase recruiting numbers, and the story speaks to that a little bit. I’m not saying that Pricewaterhousecoopers or any of the other big 4 are evil or duplicitious, but I also think that a workwell program and a retreat or only as good as the leaders that adopt them. If the leaders of PwC and the big 4 don’t adopt or believe in these programs, then millennials and recruits are still going to burnout. At the end of the day, if you want to test the big 4 on their worklife balance programs, ask just one question when you are interviewing. Ask your big 4 recruiter or big 4 partner that you are interviewing with, how they measure their employees. Ask them if they use utilization or billable hours as a key metric of performance. I can already tell you the answer. The answer is yes. You typically have to have high utilization as well to be a good performer and achieve promotions. This means that you have to have at least close to 35 hours charged to a client a week. This doesn’t include time for administrative tasks like group meetings and taking webinars. So if you take time out of your day at the big 4 to do some meditation, you aren’t going to be rewarded for it. You are still going to be expected to fill out your time sheet with chargeable time. It’s hard to avoid burnout and get your utilization because if you remember form the article burnout starts to occur at 50 hours of work a week.

Being rewarded by how much time you charge to client codes is true even if you are efficient. For example, if you can complete a 30 hour project in 10 hours, you don’t get a reward or bonus. You get more work so that you can make your firm more money.

What else can we learn from this Quartz article? It points out that some of the firms have perks that are worth investigating. PwC has Discover and Deloitte has Deloitte University. Should you choose a big 4 because of these perks? No you shouldn’t pick a firm only because of a perk that you have to wait years to receive, but it does speak to the culture of Deloitte and PwC versus EY and KPMG. My main takeaway is don’t think that PwC or the  big 4 are 100% focused on your wellbeing because of this article. They are still major corporations that are in existence for client service and billable hours. Until they get rid of metrics of billable hours and utilization, it will be extremely hard to have true worklife balance and flexibility. However, culture is important, and it appears that PwC’s culture is leaning a little bit more towards employee focused than some of the other big 4.

A lot happened in March 2018 for the big 4 accounting firms. A few of the biggest news stories are included below.

Top UK watchdog looks into breaking up the big 4

There have been a lot of scandals related to the big 4 accounting firms in the past few years which leads many people to say how can this issue be addressed as the big 4 don’t appear to be regulating themselves.

Many of these issues might be popping up due to improvements in technology and information. As technology increases, issues in the accounting of large companies might be spotted sooner.

As a result of all these issues, Stephen Haddrill has called for an investigation into whether the big 4 accounting firms should be broken up. Stephen is the head of the Financial Reporting Council which is the UK regulator of the big 4 accounting firms.

This comes after a series of scandals that have occurred related to the big 4 over the past couple of years the latest of which is the Carillion scandal. It seems that these large accounting firms should be experts in accounting and business since they are large professional service firms, but it seems that they just care less about learning their clients businesses the bigger they get.

The FRC believes that competition might help the big 4 become more diligent in their work. Since natural competition has not been a problem for the big 4 in more than a decade, the UK is trying to induce some forced competition by potentially breaking the big 4.

In the Carillion scandal, KPMG was the auditor and all the audit firms combined made almost 100 million dollars off carillion in the past year before their downfall.

There is obviously a huge problem when the audit firm can’t catch a problem at one of the Uk’s largest construction companies, but there is no downside into missing an issue because another big 4 benefits form the downfall. KPMG doesn’t care about losing a large audit because they know that one of the big 4 will likely have a scandal at their clients, and then they will be able to pick up an audit off of that.

What makes this worse is mandatory audit rotations. The big 4 just change clients every few years. It’s meant to increase independence and scrutiny, but it does little to increase competition.

Will the big 4 accoutning firms be broken up? Make sure to subscribe to our newsletter to find out.

PwC seen as milking the Carillion administration dry in the UK

In addition to scrutiny that the big 4 are receiving over the Carillion account, PwC is receiving a lot of scrutiny in particular over the Carillion bankruptcy in the UK.

PwC has been charging about 2.5 million pounds a week for the administration of the Carillion bankruptcy. They were accused by government regulators of milking the Carillion cow dry because this company was already going under and government agencies were trying to salvage what was left to provide money for pensions, but pwc says they are experts at being liquidators and need to be paid a hefty fee.

PwC was previously accused of being a bad actor as they used to be the accountants for Carillion and their pension funds. They made millions from that work yet they could not spot that the company was in financial trouble. Carillion is a huge scandal in Europe right now. It has many in Europe questioning whether the Big 4 should be broken up.

Foreign Affiliates of the Big 4 Penalized by SEC

Foreign affiliates of big 4 accounting firms were penalized by the SEC for auditing public companies in the United States without properly registering with the Public Company Accounting Oversight Board. The PCAOB is the regulator of the big 4 accounting firms. They audit the work of any accounting firm that audits public companies. Since the big 4 audit the large majority of the public companies in the United States you can understand how the PCAOB is their main regulator.

• BDO Canada agreed to pay a $50,000 penalty
• KPMG in South Africa agreed to pay $100,000 penalty
• Deloitte in Zimbabwe agreed to pay disgorgement and interest totaling $99,057
• KPMG agreed to pay $141,304 in Zimbabwe

PwC and KPMG release new gender pay gap numbers

The gender pay gap results of the large accounting firms have been trickling out over the past month. PwC and KPMG were the most recent accounting firms to release their numbers.

• PwC reported a mean gender pay gap of 43.8% and a median pay gap of 18.7%.
• KPMG stated that they have a 42% mean pay gap and a 27% median pay gap.

Each firm said that they have work to do in trying to even the playing field for women in the workplace. They all tried to describe factors that contribute to this issue, but they admitted that the current gap was not satisfactory.

Deloitte hires spies to head up their Cybersecurity

Deloitte hired a former UK spy to head up their Europe Cyber intelligence practice. His name is Rob Wainwright and he joinged Deloitte from Europol which is a EU intelligence agency similar to the CIA in the United States. Rob has 28 years of experience working in the MI5 in the Uk which is pretty much the same unit where James Bond worked.

This is a huge hire for Delotite. They are obviously seeing the demand from their corporate clients around cyber intelligence as more and more hacks happen. The latest news is this manipulation of datat from facebook accounts. Obviously facebook and other major corporations would like to pretect their private data and avoid huge headline risks from unknown technologies.

Deloitte plans to add an additional 500 people to its European cyber security practice alone.

Deloitte acquires leading AWS provider in New Zealand

Deloitte acquired a firm by the name of API Talent. API talent is considered and advanced AWS consulting partner. This is no surprise as deloitte continues to gobble up amazon web services providers across the globe. They seem to be the only big 4 firm actively acquiring in this space. Although the other big 4 offer these cloud services, Deloitte is the only one that is actively acquiring them.

Maybe it’s because Deloitte is the largest accounting firm in the world which provides them with enough capital to acquire other companies.

PwC begins utilizing Blockchain to audit

PwC has partnered with Northern trust to begin auditing on the blockchain. Northern trust developed a private blockchain for private equity transactions. This blockchain manages ownership shares. PwC was granted access to the blockchain as a node. They can see transactions happen in real time by participating as a node.

We actually suggested that this would happen in one of our previous blockchain articles. We suggested that the big 4 could not only audit via becoming a node, but they can also offer being a node as a services. These private blockchains need multiple nodes to work, but who can these companies trust? Well theoretically you wouldn’t trust anyone more than your trusty CPA right. Well that’s at least what we think many large companies would see with the big 4. It appears to be happening slowly.

PwC will be able to see the data as read only. This blockchain was developed using Linux Foundation hyperledger fabric.

This doesn’t surprise me because private equity firms are the most active in the blockchain space because they have been using blockchains to track ownership. This is pretty risky depending on who else is on Northern Trusts blockchain. We’ve spoken about this on other podcasts. It would be interesting to see who else is on this blockchain.

KPMG expands its masters of accounting with data and analytics program

As we have previously covered, KPMG offered scholarships to students to get a masters in data and analytics with accounting degree. They launched their pilot program at Ohio State and Villanova University. They have since expanded that to 9 universities

1. Arizona State University
2. Baylor University in Texas
3. Ohio State Max Fish College of Business
4. The University of Georgia’s Terry College of Business
5. University of Mississippi
6. The University of Missouri
7. University of Southern California
8. Villanova School of Business
9. Virginia Tech

KPMG will offer 135 scholarships to qualified students. The focus of the curriculum will focus on technology solutions like data and analytics, robotics, natural language processing, predictive analysis, cognitive capabilities, and workflow automation. All things that we’ve previously covered. KPMG is fully aware that these technologies are the future of accounting so that’s why they are investing in developing these leaders.

Sonoma Partners Joins Ernst and Young

Sonoma partners merged with E&Y in early march. Sonoma partners is a leading consulting firm that specializes in Microsoft Dynamics CRM and Salesforce CRM solutions. CRM stands for client relationship management. The transaction builds on EY’s high quality CRM offerings.

This will help EY build out their digital transformation offerings.

E&Y hires 400 people in charlotte North Carolina

EY is opening another wavespace center and this time they are opening it in Charlotte North Carolina. They will add 375 jobs over the next five years. The wavespace centers focus on new technologies in accounting like artificial intelligence and data & analytics.

EY will receive a 3.2 million tax incentive as part of the deal that will be spread over 12 years. E&Y is set to invest 8.2 million over the life of the project.

EY will pay an average of 75,000 per wavespace job. EY has wavespace centers in NY, San Francisco and Seattle.

In Summary

It is an exciting time in the big 4 as they invest heavily in technology. We’ve seen Deloitte acquire amazon and salesforce consultancies and we’ve seen pwc begin auditing blockchains. EY & KPMG are also investing heavily in tech jobs. EY opening a new innovation center in charlotte north Carolina and KPMG providing scholarships for data & analytics accountants. If you want to work for the big 4, it is extremely apparent that you need to learn about the new technologies that they are using.

It is also important that we don’t skim over the recent scandals and threats to the big 4 accounting firms existence.

It is essential that these scandals are highlighted and prevented in the future. How can they be prevented? I think they can be prevented by new technologies, but I also think big 4 partners and leadership need to be held accountable. I’m not going after the big 4 accounting firms because I am bitter. I am criticizing certain parts of the big 4 accounting firms because they can be great places to work, but the bad apples that work at the big 4 jeopardize their future. If big 4 partners on large accounts are not held more accountable, then regulators will ban the big 4 in certain countries like they have in India or they will break them up and force competition. Unfortunately, the big 4 aren’t really holding their partners accountable right now. All they do is release materials saying they are focusing on audit quality, but it those materials don’t seem to be making their way to leadership at the accounting firms.

It’s not just accountin scandals either. It’s gender pay gaps as can be seen in the latest pay gap releases from PwC and KPMG. Top executives at the big 4 need to be held accountable across the board as it relates to scandals, discrimination and equal pay.

If you want to help our push to keep the big 4 accounting firms accountable, forward this article on to a friend or colleague and start raising awareness on the need for change and need for accountability from top professionals in the big 4. For many of you, your futures will take place at these firms. Make sure that they are great places to work and start raising awareness today. Thanks for reading. Feel free to let us know your thoughts in the comments below.

There were a number of positive news stories about the Big Four accounting firms in second week of March 2018. The big 4 gained significant positive recognition and introduced new programs for community-building and social development, a complete turnaround from the criticisms thrown their way the week prior.

Deloitte and KPMG Recognized by Junior Achievement USA

Deloitte was among the 57 organizations recently recognized by the Junior Achievement USA (JA) for their continued support and invaluable contribution to JA’s community-building and education work for students across the United States. Deloitte received a gold level 2016-2017 US President’s Volunteer Service Award for totaling some 15,000 employee volunteer hours and for helping local JA offices teach students about entrepreneurship, financial literacy, and work preparedness. Deloitte Consulting LLP’s principal, Ainar D. Aijala, Jr., who received the award on behalf of the firm, proudly noted that their employees have regularly volunteered to work with JA and that the company itself donated over $1 million in 2003 to support the development of an ethics curriculum for grade 4 to 12 students.

KPMG was conferred the gold level status for the US President’s Volunteer Service Award for doing more than 15,000 hours of volunteer work to support the entrepreneurship and financial literacy program of the JA. This is the same award given to the Deloitte and their employee volunteers. Rob Arning, KPMG Foundation Chairman, described their employees as “extraordinary people” and reaffirmed the company’s commitment to curb illiteracy and unemployment by engaging middle and high school students.

Deloitte Wins In the Middle East

Next up we are going to discuss some significant investments and wins that Deloitte has made in the middle east.

Deloitte Helps Dubai’s Department of Finance

As part of its expansion program in the Middle East, Deloitte entered into a partnership agreement with Dubai government’s Department of Finance (DOF) to assist in the implementation phase of the International Public Sector Accounting Standards (IPSAS). The partnership hopes to improve the quality of financial reporting of government agencies, with the end view of strengthening transparency, reliability and accountability. Abdulrahman Saleh Al-Saleh, Director General, represented the DOF, while Maher Al-Khalil, who sits on the Board of Deloitte Middle East and is the Managing Partner of the firm’s Consulting Operations services, signed the agreement on behalf of Deloitte. This move is a testament to the government’s commitment to financial effectiveness by upholding high-quality international standards of financial reporting in the government and public sector.

Deloitte builds state of the art facility in Saudi Arabia

Meanwhile, in the Kingdom of Saudi Arabia (KSA), Deloitte will invest in building the Deloitte Digital Center (DDC) in Riyadh to support the Ministry of Communication and Information Technology (MCIT)’s thrust for digital skills development. Through this state-of-the-art facility, Deloitte not only hopes to educate the young people about digital technologies, but more importantly, “contribute to building a thriving economy and vibrant innovative society with new job opportunities for many Saudi citizens,” as Deloitte Global CEO Punit Renjen puts it.

Deloitte builds social development accelerator in the Middle East

Deloitte also intends to support the Middle East’s social development agenda by launching the Deloitte Accelerator for Social Innovation (DASI), a program in collaboration with Ashoka Arab World and Communication Design that will provide technical assistance valued at over $100,000 to organizations that adopt a viable and scalable social development and environmental protection strategy, and ideally have women in leadership roles. Two social enterprises will be chosen from the 14 countries in the Middle East and receive expert advice and training from Deloitte. Winners will also enjoy other learning and networking opportunities to further develop their plans. Deloitte Middle East Chief Executive Omar Fahoum explained that “DASI is an exemplification of Deloitte’s corporate responsibility, where we aim to positively impact the greatest number of people in the Middle East communities through our core expertise and our global Deloitte WorldClass initiative that aims to empower 50 million futures by 2030”.

These developments in the Middle East just go to show what sets the big 4 accounting firms apart from their mid tier counterparts.

KPMG Earns Record Audit Fee from General Electric (GE)

In other news, KPMG received a $142.9 million in fees from General Electric Co. (GE), the biggest so far in their more than 100 years of working together. This news came out from GE’s latest financials and proxy statement.

GE decided to stick with KPMG as their auditor for at least another year because of the firm’s institutional knowledge of the company and their accounting issues with the federal securities regulators. The amount GE paid KPMG in 2017 increased by 59 percent compared to the previous year, primarily due to the GE-Baker Hughes merger. Despite questions from a small percentage of the shareholders, GE Chief Financial Officer Jamie Miller continued to show confidence in KPMG and said that while there are no plans to let go of the firm this year, it is a discussion they have to make on a yearly basis.

KPMG Wins Carluccio’s

KPMG was also brought in by Carluccio’s, an Italian restaurant chain with 102 outlets in the UK, Turkey and UAE, to be their financial advisor amidst poor sales and performance, as well as leadership transition. Carluccio’s pre-tax profits significantly dropped from £5.2 million to only £0.98 million, which led to the closing of their restaurants in various locations.

EY ventures into robotics in Canada

EY launched their robotic services facility in Halifax – the first of its kind in Canada – in response to growing interest in digital transformation. Said facility is part of the EY Global Centers of Excellence which boasts of having completed Robotic Process Automation (RPA) projects in over 20 countries worldwide. It looks to deliver more RPA-based digital services to back office functions of Canadian companies.

The decision to build the facility in Halifax was made because it is known to be a “hub for talent and innovation” and because of its “access to a well-educated and diverse workforce, accessible airport, and a relatively affordable cost of living, per Jad Shimaly, EY Canada Advisory Services managing partner. Through this centre, EY hopes to contribute to the growth of the city and the region as a technology expert.

PwC tests tool to track cryptocurrencies

To help companies trace their digital tokens after their initial coin offering (ICO), PwC is testing a blockchain analytics tool developed by over 80 technology experts. This tool is more than a ledger. It is intended to complement the blockchain technology by enabling the user to not only track the transaction amounts, but also to locate digital coins and know how these cryptocurrencies are being used. This way, companies can lessen the risks associated with misuse and theft post-issuance, and better anticipate the potential circulations of digital tokens. PwC is looking to offer this tool to companies planning to launch ICOs.

It was a week full of damage control for the world’s leading accounting firms as they try to save their reputation and keep their clientele engaged amidst allegations of employee misconduct and large gender pay gaps.

Ernst & Young faces harassment controversy & UK gender pay gap

Take for instance, Ernst and Young’s (EY) office managing partner in South Australia, Don Manifold, who recently left his post at the firm’s Adelaide office because he was found guilty of violating their code of conduct.

After a rigid six-week investigation following sexual harassment allegations, the firm revealed that there was, indeed, a breach of workplace policies involving Mr. Manifold and a female colleague whose name was left out of the investigation report. However, the firm was quick to clarify that the sexual harassment claims against Mr. Manifold were not corroborated.

As a sign of transparency and commitment to clean their ranks of such unacceptable behaviors, Tony Johnson, Ernst and Young’s Australian chief executive, notified EY Australia employees via email about the investigation report and stressed the firm’s stance on bullying and harassment. Mr. Johnson likewise urged employees to report such cases and assured them that each report will be taken seriously and in confidence. “My ask of all staff and partners is to recognize and reward positive behaviors and to call-out unacceptable behavior whenever you see it; whether in the workplace or out of the workplace,” he said.

Mr. Manifold will be replaced by Mark Phelps, a senior auditor of the firm’s Adelaide office and is associated with several reputable organizations such as the Adelaide Football Club, Catherine House, Access2Place, and United Way SA in various capacities.

Other names were also announced to support Mr. Phelps’ new leadership team, including Linzi Carr as people partner, Mark Stewart and Craig Whiteman as service line leaders, and Ben Bishop as transaction advisory services partner.

On the heels of this controversy EY released their gender pay gap numbers in the UK. EY reported

• a mean gender pay gap of 38.1%
• and a median pay gap of 19.5%

Not only do women working at EY face harassment, but it seems like you have to earn less than the men harassing you. EY stated that they are invested in transparency around this issue, and they are also invested in over 20 initiatives to reduce the gender pay gap.

KPMG faces harassment controversy as well

It wasn’t just Ernst and Young that was all over the news last week because of a ‘scandal’. In fact, KPMG had to do damage control themselves when Adrian Lanzilli, their South Australian partner, was involved in a sexual harassment case. He, too, tendered his resignation, but without even waiting for the investigation to begin. And, yes, it doesn’t just end in Australia as KPMG’s reputation has been tarnished in the United States, United Kingdom, and in South Africa due to serious allegations of misconduct and questionable work quality.

KPMG and Big 4 Benefit Globally But Keep Scandals Local

To make matters worse, KPMG along with the rest of the Big Four accounting firms have been called out because of the way they manage controversies – either related to their employees or the actual audit work they produce – in their local partner offices. Critics say that the very nature of the organization’s structure is to blame the lack of accountability on the firms’ headquarters. Critics claim that while the firms’ global offices uphold a strong brand and reputation, and provide strategic guidance and oversight, they have little to no control over what their local employees are doing and how they are executing their work. The critics also assert the the Big Four’s global offices actually prefer it that way to keep their risk low. They want their affiliates’ issues to be resolved locally, as if putting up a firewall, so that the local noise won’t get escalated to the global level and make the firms lose their major clients. “The only time you hear ‘Well, we’re not all KPMG’ is when they get sued”, quipped Steven W. Thomas, a lawyer handling cases against accounting firms.

To address this problem, the Public Company Accounting Oversight Board (PCAOB) required accounting firms to disclose if they are working with local affiliates in conducting an audit. This move, which started last year, hopes to tighten global controls over local affiliates and protect US-based firms and their clientele. Ultimately, scandalous local offices may have to be dissociated from the global network to maintain the firm’s credibility. PCAOB Chairman William Duhnke, however, acknowledges that this might be a bit challenging given that the local affiliates are also protected by their country’s policies on licensing and ownership, and will thus be difficult to open an investigation if needed.

Deloitte Reports Huge Pay Gap in the UK

Meanwhile, Deloitte is faced with a somewhat different yet still workplace-related issue. Their UK branch is being slammed by critics for paying their female employees 43.2 percent lower compared to their male counterparts. The gap represents a wide disparity between the opportunities available to male and female workers, particularly at the senior management level. This was supported by the statement made by Emma Codd, Deloitte UK’s managing partner for talent. She said, “These calculations again serve as a stark reminder that we don’t have enough women in senior roles – this is not about unequal pay, but the shape of our firm.”

Deloitte UK revealed this information in response to the requirement imposed by the UK government to companies with over 250 staff.

Last year, Deloitte UK reported that the mean salary gap is only at 18.2 percent because they deliberately excluded highly-paid executives and partners from the equation. Political groups harshly criticized the accounting firm, as well as other global companies like Ernst and Young and Barclays for inaccurately reporting their pay gap. Lawmaker Nicky Morgan even accused them of exploiting a technical and legal loophole through their selective computations.

However, Deloitte wanted to make things right and revised their report. We “listened to the calls for firms such as ours to do more in how we report gender pay data. We are firmly committed to transparency and achieving consistency in gender pay reporting standards,” explained David Sproul, Deloitte UK’s senior executive.

Needless to say, issues like this can have a huge and lasting impact on the reputation of accounting firms and other global brands. If left unresolved, they may lead to less clients or may even throw a company to a downward spiral pretty quickly. Deloitte, partly because of controversies in their local affiliates, has actually lost six clients, which in turn, made them slide from the top to third place of the FTSE 250 auditor rankings.

PwC Moves to First Place in FTSE 250 Auditor Rankings

On a more positive note, PricewaterhouseCoopers (PwC)  added six new clients in the first quarter of 2018 shooting them to the top of the FTSE 250 auditor rankings.

• This means that PwC audits the most companies listed in the FTSE 250. They now audit 69 clients in the FTSE 250.
• KPMG took on the second spot as they audit 66 clients in the FTSE 250.
• Deloitte dropped from first to third place in the rankings after dropping 6 clients in Q1 2018. This takes them down to 63 clients in the top 250.
• EY landed in fourth as it dropped two clients and is now at 42 clients in the FTSE 250

In a move to even widen its lead, PwC created the role of a Chief Experience Officer and handpicked Roger Gagnon to be the first executive to fill up this important post. With this, PwC looks to carry out its new consulting strategy of “combining business, experience and technology to help clients accelerate their business transformations.” This role will help PwC expand their growth into marketing and design as this role will focus on user design in the technology industry.

Mr. Gagnon’s credentials, with over 15 years of working in this field across the globe, make him perfect for the job.