More Taxation through Eroded Tax Avoidance

It all makes sense now.

The US government expects to generate increased corporate tax revenue this year. Much more.

How is this possible without a tax hike?

Well, it could be possible through an increase in corporate revenues. Business growth leads to the collection of more taxes. Maybe in 1999 – but the world is different now.

Instead, the source of this new revenue is a bit more subtle. Needless to say, the Treasury Department has four holiday cards to mail this year: Deloitte, E&Y, KPMG, and PwC.

Increased audit requirements, under the Sarbanes-Oxley Act of 2002, have resulted in increased audit fees and a decline in auditor tolerance for aggressive tax avoidance programs. The loss of tax advisory fees by the Big Four is only part of the story. More profound is the fact that fewer tax avoidance schemes result in higher corporate taxes.

This makes the Treasury Department quite happy.

It’s all really straightforward.

Auditors have become less tolerant of aggressive approaches to tax and accounting practices since SOX was passed. Tax reduction programs are only effective if they push the envelope. They involve risk. Auditors were once willing to let companies accept the risk necessary to implement meaningful tax avoidance programs.

Not any more.

There are two reasons for the auditors’ newfound aversion to this risk. Obviously, auditors are sensitive to anything that looks or smells like impropriety in the wake of this decade’s major corporate governance scandals. They are gun shy. Exacerbating this timidity is the recent pursuit of KPMG by the Justice Department for its sale of allegedly abusive tax shelters.
This is a pretty nice trick. Implicitly, the government has implemented a subtle tax hike through SOX. Auditors, unwilling to approve bold tax avoidance schemes, appear to have been deputized by the IRS.

Hung Jury Does Not Mean Acquitted

Five executives from Enron’s internet business have learned that an indecisive jury does not mean freedom. Of the 170 counts on which these defendants were tried, the vast majority led neither to an acquittal nor a guilty verdict.

The US government has decided to try again for a conviction. So far, these five defendants have eluded a guilty verdict.

This latest round of battles between Enron’s internet business employees and the US government is likely to provide momentum to the winner in the prosecution of Enron’s senior executives (such as Ken Lay) – expected to begin in early 2006.

In this second attempt at a guilty verdict – targeting Joseph Hirko, Rex Shelby, Kevin Howard, Michael Krantz, and Scott Yeager – the government has narrowed its focus to thirty-one charges.

Former Enron investors are watching these criminal cases closely, as they may improve their chances of victory in civil suits.

Congratulations to Kollabra!

I’d like to take the opportunity to congratulate Kollabra on its recent win. Kollabra, which is a freelance client of mine, made the Deloitte Technology Fast 500 list for 2005. This is a substantial success for a rapidly growing company.

Kollabra develops custom engineering solutions for a wide variety of companies across North America. With a mix of full-time and contract employees that is 25 strong, Kollabra has a federated team structure that enables fast, flexible solution delivery.

The Deloitte Technology Fast 500 is a great benchmark for success. Companies named to the Fast 500 have to develop innovative technology solutions – they can’t repurpose existing technology in an “innovative” manner. These contenders have to bring a five-year operating history to the table. Revenue for the first year must exceed US$50,000, and revenue for the fifth year must exceed US$1 million.

Don't Just Focus on SOX!

I was a bit disturbed, though not surprised, by an article that I read in the financial Times last week. Public companies have become obsessed with bringing their IT departments into SOX compliance that they are overlooking a variety of other IT security risks. According to a recent security study by E&Y, most public y traded companies are focusing almost singularly on SOX, overlooking general IT security concerns.

This bit of news definitely bothered me. Public companies are spending so much time focusing on mechanically meeting the SOX standards proscribed by their auditors that they are not paying any attention to other critical business needs. What we are seeing, consequently, is the artificial compliance environment overshadow the market-defined business operating environment. Businesses have to eschew the needs determined by the market to focus on those imposed by the environment.

The result of this mess is a significant risk of fraud - which is what SOX set out to prevent! We are losing the war as we struggle to win the Sarbanes-Oxley battle.

Government-imposed priorities do not work in what is generally a free market economy. I will concede that what we have in the US is a hybrid economy, characterized fundamentally by free market characteristics. This makes sense. A truly free market is open to manipulation and fraud. Some artificial safeguards are of course necessary.

The corporate governance disasters of the past few years really do illustrate this point. Left to their own devices, companies will bend, break, or even maul the rules for the sake of financial gain. Enron, WorldCom, and Tyco demonstrate this fact. Auditors, of course, have become complicit in these efforts. Enron relied on Andersen's guidance, and a plethora of high net worth individuals accepted KPMG's help in dodging their tax obligations.

Some government oversight is necessary.

The goal should be to find a model in which oversight can be introduced without impeding the ability of companies to operate and respond to the market. As with everything, we need balance.

I did some homework today on KPMG

Ever since I received that phone call from KPMG, I have been curious about a few things. The first is how they even found this blog! Let's face it, the traffic isn't huge. I'm on track right now to get around 5700 page views per month - I installed a counter recently. These are not big numbers. So, how did KPMG find me?

Well, I saw the domains that refer traffic to my blog, and it appears that somebody recently came to this blog from the MSN search window, using the criteria: KPMG and regulatory problems. This blog comes up on the seventh page of search results. But, it could have been the person who used Google to search for: "big four" accounting firms prosecution litigation 2005. That put the blog as the tenth option out of 515.

Thanks to everybody who is checking this out from as far as India, by the way. I appreciate your interest.

Assuming that somebody from KPMG found my blog, they still had to get my home phone number. Since I work from home (one of the perks of being a freelance writer), one can call me at home using my "work" number. Well, I recently published a few articles in the Sarbanes-Oxley Compliance Journal (http://www.s-ox.com), and I listed my cell as my business number. This is usually more prudent, because I do a lot of my writing from a local cigar shop.

But, they called my home number. This means that they probably did a Google search on "tom johansmeyer, assumed I am not the guy who writes for an adult-oriented publication, and sifted through the many white papers I have written for Imceda and Quest Software. On the Imceda white papers, I list my home number as the business line.

Clearly, these folks did their homework.

I know that this doesn't provide much insight into the Big Four, but I did want to provide some context on the recent phone call from KPMG - as well as their reaction to my 9/30 story.

Tom Johansmeyer

You won't believe the phone call I received

I received an interesting phone call yesterday.

Over the past few weeks, I have learned to accept the fact that this blog has a small but growing readership. Let's face it - the information here is targeted at a relatively small population. Further, it's pretty clear that I am not one of the "celebrity" bloggers that gets featured in Time.

I learned yesterday that interest in my modest blog is much deeper than I realized. I received a call from KPMG.

I'm just surprised they found this blog! Seriously. If you do a Google search on KPMG, the Big Four Alumni Blog isn't exactly at the top of the results list. Somebody clearly keeps track of what is written about the firm.

Clearly.

I can't remember the gentleman's name. He told me, but I have to admit that I was not paying as much attention as I should have. He agreed to send his contact information, so I should "remember" his name soon. This gentleman was extremely professional, and of course polite. (Note: I still have not received his contact information.)

But, why the call?

KPMG, it seems, objects to my coverage of their recent challenges. Specifically, the gentleman on the phone referenced my post from September 30th (below). Overlooking my praise of the firm's talented practitioners, he zeroed in on my thoughts on the recent PCAOB examination in which a handful of KPMG's public company audits were questioned.

The PCAOB examination certainly is public knowledge. I read about it first in the Financial Times, simiply because that is the newspaper I read every morning. I also encountered this story in a number of other places. Of course, this is not what upset the gentlman at KPMG.

He was a bit concerned about my discussion of the "Big Three" - a possible outcome of KPMG's continued legal problems. Readers of BigFour.com know that I have been pondering this theme since the middle of the summer - even before we launched this blog. I wrote about it in a few newsletter articles. In fact, these articles were picked up by a number of web publications around the world.

I pondered whether this latest KPMG problem renews concerns about audit industry concentration. On its own, the thought would never have occurred to me. PwC was examined as well, adn they received criticism from the PCAOB.

So, why am I picking on KPMG?

It's really quite simple. With KPMG, there's a bit more going on. PwC, Deloitte, and E&Y did not write a half billion dollar check to the US government to avoid prosecution (as settlement). PwC, Deloitte, and E&Y are not subject to indepednent oversight as the result of a recent deal with the feds. KPMG, well, you know the story.

Let me make one thing perfectly clear. I like KPMG. It's a great firm, as I wrote in my "objectinoable" article on 9/30. They do great work, and I think the majority of partners and practitioners at KPMG are getting a raw deal. The many are punished for the sins fo a few. It's truly a shame.

I stand by my story - as I stand by every story, blog post, and everything else I have written. KPMG is in an unenviable position; I can't do anything about that. But, I will continue to cover and analyze stories pertaining to the Big Four - including KPMG - as I see fit.

To any Big Four marketing or PR professionals out there, please feel free to contact me if you would like to be offered the chance to comment for my blog. You have the option to comment or not, but ultimately the decision to publish is mine alone.

Please share your thoughts on this matter.

Tom Johansmeyer

I Told You It Wasn't Over

KPMG’s settlement with the US government over its abusive tax shelters may indicate some degree of finality for the firm (in regards to the case itself), but the story is far from over. The US government made no secret about the fact that it plans to pursue certain individuals criminally.

The roster just grew by ten, bringing the total to nineteen. Charges range from conspiracy to defraud the IRS to tax evasion. Yes, we’re in felony territory. Sixteen of the individuals charged, according to a recent report in Financial Times, are former KPMG partners (10/18/2005).

One thing seems to be certain: somebody is going to jail.

This brings up an interesting question. Is it really more appropriate to pursue individuals? A conflict seems to have emerged. The purpose of the partnership is, as an independent entity, to shield the members from liability.

If a crime occurred – let’s let the jury decide whether one has nor not – shouldn’t KPMG be on trial? After all, KPMG committed the acts that are alleged to be criminal. Sure, the actual decisions were made by members of the firm. No business entity “acts” independent of its employees. But, the partners acted through the firm.

As we all know, though, going after the firm is dangerous. We can’t afford to lose another accounting firm. Going down to a “Big Three” would certainly have a negative effect on the accounting industry.

So, we’re avoiding the firm and going after the partners. In compromising the integrity of the LLP structure, we are preserving the actual KPMG partnership. It does seem contradictory.

IN the criminal prosecution of former KPMG partners, a profound problem has arisen. We have to choose between two of the most important challenges facing the Big Four: the integrity of the LLP structure and prevention of the collapse of another major accounting firm.

What happens to KPMG over the next year will undoubtedly shape the industry for the next decade.

By Tom Johansmeyer

Auditors Are Hot!

The sexiness of this profession just won't quit! Accounting, once avoided as "boring" and mere "bean-counting", is suddenly desirable. It's interesting. It is easy to credit the demand created by SOX as the driver behind this trend. This much is obvious.

What's going on?

After the collapse of Enron, we saw just how important accountants are – especially independent auditors. Auditors became the guardians of shareholder value.

So, a number of forces have converged to make accounting sexy. Of course, the demand in the market that resulted from SOX is one prominent factor. Another is the prestige that has emerged around the accounting profession. After Enron, the business community – and individual investors – knows how important auditors are. Among the most substantial drivers, though, seem to be salary.

Salary?

Once upon a time, brand new audit associates didn’t make squat. When my wife and I were at Deloitte, I was a first year consultant, and she was a first year tax associate. My salary was twice hers. So, the notion that the profession’s salary is attracting people is mind-blowing.

Among the ten factors used to rank why recent graduates were attracted to different companies, salaries ranked sixth – much higher than I expected. (This was covered in a Financial Times article on 10/12/2005.)

Clearly, this trend has a Big Four angle. According to the FT article mentioned above, three of the Big Four are among recent grads’ top ten ideal employers. PwC turned in the best Big Four performance at #2, with E&Y at #3 and Deloitte at #6. Given their recent image problems, KPMG is not among the top ten – though I think this will change in future years.

By Tom Johansmeyer

This is making me extremely nervous

When I saw KPMG's name spread across the business pages regarding recent audit work, I was disappointed but not surprised. Let's face it - the firm has fallen on hard times. That they would be targeted by the PCAOB did not surprise me, though. Bad things happen. When I took a look at the news this morning, I was shocked to see that Deloitte is now sharing these PCAOB headlines.

These news stories are disturbing. Some-number-of-name-withheld-clients have restated earnings after federal regulators identified material problems in the audits conducted. What scares me is the fact that the names of the audit "victims" are not disclosed. We have no idea what the problems are. This news is not news at all. It merely announces undisclosed government findings. It appears to be bad press for the sake of bad press.

Like KPMG, Deloitte disagreed with many of the board's assessments. While this may be standard practice as a way to assert innocence in the court of public opinion, I think that KPMG and Deloitte may have a point. The PCAOB has become notorious for ineffective practices, vague guidance, and really having no connection to reality. The "perpetrators" appear more credible.

Reports for PwC and E&Y are on the horizon; it should be interesting to see what the PCAOB does. KPMG got nailed on 19 of 76 audits investigated (not a spectacular result), while D&T got hit for eight out of 125. No details were released.

How does this inspire confidence in public companies?

By Tom Johansmeyer

The Threat of Big Four Consolidation

Concerns around the long-term prospects of KPMG to get out of the government’s sights have renewed the discussion of auditor concentration in the accounting industry. The collapse of Andersen did not result in the promotion of Grant Thornton to the Big Five. Instead, the activities of Andersen’s former clients and employees demonstrated that there would only be a Big Four.

Is that enough?

The marketplace, of course, has cast its vote. The collapse of Andersen did not result in a flight to smaller firms, and it is likely that the loss of one of the remaining Big Four would have a similar result. This trend toward concentration merely has accelerated a trend that began as consolidation – featuring such monstrous mergers as Pricewaterhouse with Coopers Lybrand and Deloitte Haskins and Sells with Touche Ross.

What’s next?

Certainly, the rapid growth of smaller audit firms is unlikely. While public companies lament the lack of options, they are really unanimous in voicing the insufficiency of smaller audit firms to meet their complex needs. Joining the chorus is the investment banking community, which has an overwhelming bias toward the services of the Big Four.

The only alternative to audit firm concentration appears to be a forced break-up of the Big Four. Would we see the return of such forgotten partners as Haskins, Marwick, and Lybrand? Could Fidelity wind up selecting Touche Sells as its auditor?

The possibilities are endless, while the plausibility is not.

The problem of how to decompose the Big Four firms would represent the preliminary problem. Regional divisions would make little sense given the broad domestic and global reaches of even smaller public companies. Could you put Deloitte on the East Coast and Touche on the West Coast? Give Coopers the Midwest, Price the Deep South, and Waterhouse Texas and Oklahoma?

The easier option would be to divide the Big Four firms along business lines. This would entail different firms for tax, audit, and consulting services. Maybe Deloitte could resurrect Braxton after all!

The problem with dividing the Big Four along business lines is that it would do nothing to reduce audit concentration. There would be four big audit firms, four big tax firms, and four more big consulting firms.

Did PwC’s sale of its consulting practice to IBM do anything to audit services? KPMG’s spinoff and eventual IPO of BearingPoint? Of course not.

The government cannot do anything to unwind an industry consolidation that has evolved over two decades. The cure would be far worse than the disease. Instead of worrying about audit concentration, the PCAOB and SEC should focus on effective, clear auditing standards to ensure effective, thorough, consistent audits – instead of trying to shape market forces.

By Tom Johansmeyer

Keep from Getting Lost in the Shuffle

When you're on a big project team, it's pretty easy to be overlooked. Generally, these large projects (those with more than 30ish people) represent spectacular opportunities. You'll meet people from all over the company, especially those who may not work in your practice or serivce line. You'll run into a plethora of senior managers and partners who can keep you in mind for future projects. And let's face it, big projects mean you'll be billable for a long time. No need to hunt for projects every few months - huge projects take care of that for you.

The problem with these substantial opportunities is that it's easy to get lost in the crowd. You can wind up doin ga spectacular job, and your performance review for the project may not reflect the work you actually did. You could have an amazing idea in the middle of a project - executed beautifully. Four months later, when the project is coming to a close, it's forgotten. So, your performance review could wind up overlooking many of your important contributions.

There is an even worse scenario. During the project, you could be forgotten completely. This has happened to me twice. I remember staring at the four walls of a hotel room in Kalamazoo (not kidding) that we used as a satellite office for the project. What a waste . . . I also spent the better part of a month outside in the smoking area when I worked on a project here in Manhattan. In both cases, the efforts were so large that the leadership forgot they had me around. This can be disastrous for you. At the end of the project, whether or not it was your fault you were overlooked, somebody has to review your performance. If they have nothing to say, that's exactly what your review will reflect.

How can you avoid these problems? Actually, it's easier than you think. First, always keep a project journal. Every day (if you have lots of time on your hands) or more realistically every week, keep track of what you accomplished. Good meetings with clients, ideas you contributed, and tasks you completed are the most effective entries into your journal. Don't sink a lot of time into this. Twelve months from now, the four or five lines you wrote about what you did this week might be helpful.

To keep from being forgotten - which can and does happen - you need to remain prominent; you have to stay in the game somehow. The easiest way to do this is to review every project deliverable that gets circulated through your workstream and have something constructive to say. This shows that you are staying in touch with the work that is being done. Another idea is to volunteer for a role that coordinates acrivities between members or work streams - such as version control or document management.

If you stay in the middle of the action, your career and morale will benefit significantly.

Tom Johansmeyer

Sarbanes-Oxley not as Good as It Seems

Ostensibly, Sarbanes-Oxley looks like a great opportunity for the Big Four. The cost of compliance is extremely high, with an average price tag of $4.36 million for publicly traded companies in the US. Of course, most of those fees go to the Big Four. What's not to love?

Plenty.

Despite the increase in fees - both through rate increases and larger audit engagements - Sarbanes-Oxley has made the audit business riskier. The risk from litigation exposure is clear, but there is a subtler, more dangerous angle. Clients are becoming less tolerant of complex audit and weary of the excessive fees for which they are responsible.

The fact that auditors are afraid of government prosecution (a legitimate fear as we have seen from KPMG recently) and client litigation (take a look at Equitable's recent suit against E&Y - recently dismissed) has driven them to set the audit bar high. Weaknesses in internal controls that may not be material are often characterized as such. Auditors want to be careful, so they err on the side of control.

The impact has been profound. Many publicly traded companies are now shopping for more "reasonable" auditors than those they have engaged at present. Auditors thus are squeezed by competing pressures. On one side, they are driven to conduct brutal audits that protect them from even the hint of negligence. On the other hand, overzealous audit standards can cause clients to seek counsel elsewhere.

The only market force that balance the Big Four community is the lack of alternatives. The Big Four have equally, though not collectively, driven fees upward along with audit standards and zero tolerance audit policies.

Tom Johansmeyer

Changes at the NYSE?

I hope everybody at least has kept an eye on this. Over the summer, the New York Stock Exchange (NYSE) announced a mind-blowing two-part plan: (1) acquire the automated Archipelago Exchange and (2) ditch its non-profit status and go public. The elder statesman of the stock exchange industry's plan is radical, despite the fact that the NYSE is a bit late to the party.

The NYSE has long labored under the "specialist" model, which relies on a human intermediary for all stock transactions on the Exchange floor. The result is suboptimal trade execution, a reliance on a restricted trading day (9:30 AM to 4:00 PM), and a higher cost of trade execution that ripples through the brokerage industry.

Most observers took the Arca merger as a sign that things were about to change at the NYSE. The acquisition of a prominent automated exchange could only mean that the NYSE was considering a move from the dated specialist trading model.

It would be about time. Seriously.

The NYSE's primary competition, NASDAQ, operates exclusively in an automated fashion, and most of the regional exchanges (Phily being the most recent) have headed in this direction as well.

The NYSE's notion of going public is also not unusual, as the CBOE is in the process of doing so. A public offering and abandonment of non-profit status also would alleviate many of the NYSE's recent problems around executive compensation.

Of course, revolutionary changes breed discontent. The NY Post reported last week that a NYSE member lawsuit against the exchange continues to recruit participants from among the membership. The old guard, it seems, is comfortable with the status quo.

The absurdity of this position cannot be overstated.

The relevance of the NYSE will recede if changes do not occur soon. As automated trading platforms gain momentum, the only advantage the NYSE has in retracting listing companies is prestige. Prestige, though, does not compare to more advantageous trade execution and more reasonable bid/ask spreads.

The iconoclasts will have their day! The NYSE must adapt or fade into irrelevance (i.e. become a closer cousin to the American Stock Exchange).

Tom Johansmeyer

Strategies for Finding the Right Project

Everyone in the Big Four knows there is a lot you can do to manage your fate. You don't have to sit and wait for somebody to find you. In fact, you'll be a lot happier if you seek out the projects you and and position yourself to get on board. You'll build relationships, work on projects that interest you, and generally be seen as a "go getter." It's easy to be perceived as ambitious when it gets you what you want!

The importance of networking cannot be understated. This is the best way to build your visibility, and a properly managed network can put you in the enviable position of having multiple projects from which to choose. You can expand your network simply by talking to people. When you go to practice or firm-wide events, don't spend all your time talking to the people you know. You'll talk to them soon anyway. Introduce yourself to people you don't know. Find out what they do. These are acquaintances that definitely will remember you when they need you.

Keep track of people. It's easy. On most projects, especially big projects, you'll meet a number of new people. After the project ends, shoot them an e-mail every now and then. On many projects, especially during the proposal or ramp-up stages, my project managers would ask existing teammembers if they knew of any talent for project team positoins that hadn't been filled yet. Keeping in touch with former teammates can definitely help you. Yours will be the name that comes to mind when their project managers ask.

Work on proposals - as many as you can. Yes, proposal work is frustrating, tiresome,a nd of course not billable. But, it positions you at the front of the line when your firm wins the work and the project team needs to be assembled. Also, working on proposals expands your network.

When you wait for a project to find you, you're stuck with whatever finds you first. By finding projects on your own, you stay ahead of the game, and you'l be more likely to find interesting, satisfying opportunities. You'll notice the difference during your appraisal process at the end of the year.

Looking for an Accounting Gig?

There has been no better time to become an accountant than the present. Seriously. This once boring profession has become almost sexy in today's business and regulatory environment.

Hey, I'm as blown away as you are.

Among the major reasons for the sudden accounting boom is the Sarbanes-Oxley Act of 2002. SOX, as it is called, has resulted in stricter requirements for public companies around internal controls, such as the reduction of fraud. The average public company pays more than $4 million to comply with SOX, and the vast majority of these fees wind up in the Big Four's coffers.

To earn these fees, of course, the Big Four need to be able to staff their projects. Demand for CPAs and CPAs-to-be is through the roof, and it doesn't look like the demand will subside anytime soon. The Big Four can't fill their open positions fast enough, making it harder and harder to staff projects.

If you ever wanted to work in the Big Four, now's the time to do it!

It's still not easy to break into this prestigious subset of the accounting market. It helps to have gone through a solid business program and have had a more than respectable GPA. The good news, though, is that your chances are better than ever of breaking through.

KPMG Just Keeps Getting into Trouble

I read the Financial Times today as I took the subway into the office, and I was surprised to see that KPMG is again in trouble with the goverment. I feel bad for the folks at KPMG. It's a strong firm that does great work. The vast majority of the staff at KPMG is extremely talented. These continued problems must be tough on the average associate there.

Well, KPMG's latest travails involve the auditors. According to the Financial Times, the Public Company Accounting Oversight Board (PCAOB) has taken issue with 76 of KPMG's public company audits, 19 of which have been flagged as extremely problematic. Few details have been released by the US government or KPMG.

What really drives me nuts about the continued legal problems of KPMG is the impact it has on employees and partners unrelated to the audits being investigated. Of the thousands of employees at KPMG, only a small fraction are involved in the work being investigated. But, the damage to KPMG's reputation affects all of them. The same thing happened at Andersen, where the impropriety of a only a few brought down the entire firm. Such bold investigation and prosecution is inappropriate in the accounting industry at present. The industry is far too fragile.

Fragile? I know; how can I call four firms with a combined market cap of over $60 billion fragile?

Think about it - the demise of Andersen led to an increased consolidation in the accounting industry, as the vast majority of Andersen's employees and clients wound up at the remaining Big Four. Concerns arose quickly about the virtual monopoly the Big Four has in the public company accounting space. Fears intensified as KPMG's indictment seemed inches away (for more, check out http://www.big4.com/newsletter/DowntoBig3.htm). If the Big Four were to become the Big Three, the resultant lack of choices for public companies would make auditor indpendence even harder to enforce.

The aggressive pursuit and prosecution of the Big Four needs to change. I am not suggesting that the Big Four be given too much lattitude in the way they conduct audits. Of course, that would be absurd. The protection of shareholders is paramount. But, the government needs to change its approach. The overzealous pursuit of Big Four impropriety could lead to what public company CFOs fear most - a Big Three.

Prior to this ordeal, KPMG settled with the US government - to the tune of $456 million - to avoid prosecution for abusive tax shelters that the firm sold to high net worth individuals from 1996 to 2002. KPMG is on a "probation" of sorts for 18 months while an independent overseer validates that the firm has changed its practices.

Any thougts on this?

Tom Johansmeyer

Life After Big Four?

There are two reasons for taking a job at a Big Four firm. One is simply to get it on your resume. Working for a prestigious firm such as Deloitte or KPMG helps significantly in future job searches. Big Four names are universally recognized as purveyors of extremly high quality services. Once you have worked for a Big Four, you have access to other top-tier companies in any industry.

This is why most people go to the Big Four initially. It's just like the legal community. Young attorneys take jobs at places like Davis Polk and Skadden ARps to get two or three years under their benlts before pursuing opportunities elsewhere. Accountants and consultants are no different. They seek the experience and prestige of a stint at the Big Four before moving to another ocmpany for more money, less travel, shorter days, and so on.

But, something happens.

The second reason for working at a Big Four firm is more substantial, and it quickly surpasses the two-or-three-years-and-I'm-out-of-here dreams of young associates. The primary reason for a Big Four career - as far as the Big Four as an institution is concerned - is the partnership. You work at a place like Ernst & Young or PricewaterhouseCoopers because you want to be a partner someday. I went through this as well. I started out looking for some experience and a name on the resume, but my thinking quickly transformed.

Many Big Four professionals, even Senior Managers, are starting to think about alternatives to the traditional Big Four career path. But, finding alternatives is difficult. When you have had your goals tied to the partnership for so long, you tend to lose sight of the alternatives.

Most Big Four professionals, especially consultants, have trouble fitting into the "real world," which makes the transition even more complicated. Normal jobs, where your workload and tasks are more consistent and predictable, differ profoundly from the lifestyles of the Big Four. Consultants are accustomed to having varying schedules, new projects, and different people every few months.

"You mean I have to see the same people every day!" Ouch.

The best solution I have encountered is to forsake the daily grind for the life of an independent consultant. Hang out your own shingle and go freelance.

What makes the freelance consulting market attractive is that you can keep the aspects of Big Four life that you find attractive while shedding those that are more frustrating. You can pick your own projects and turn down those that don't interest you. If you don't want to travel, you don't have to! Just take local work. Generally, you won't have many work weeks that exceed fifty hours. When you do, though, you'll get paid for all that extra time. Speacking of cash, you'll be paid what you're worth. Freelance rates tend to yield higher annual incomes than Big Four salaries.

Yes, there is a considerable amount of risk in this choice. You'll go through periods of lower rates - and sometimes no work. But,if you plan effectively, your rates will compensate for the lulls. The happiest ex-Big Four professionals I know have opted for the freelance route. They only take projects they like, and they usually make a lot more than they did at their respective firms.

There is definitely life after Big Four.

Tom Johansmeyer

Welcome to the Big Four Blog

The Big Four community is different from that in most other industries. Big Four veteran have a little more in common with each other than people who have worked in any other industry. Many Big Four professionals have worked for more than one of the Big Four, and a lot of us have entered and left the Big Four (if you're like me a few times) using our Big Four connections.

But the Big Four community is more than a network - it's more like a community within a community. There is something that makes a stint in the Big Four different from having been an auditor or consulant anywhere else. It's a mix of prestige, frequent flier miles, and working on projects that show up in Newsweek and the Wall Street Journal.

This blog will discuss all things Big Four - and then some. Not limited to Big Four veternas or current Big Four employees, I plan to address a variety of other issues that affect the Big Four - and the rest fo the business world. Sarbanes-Oxley, for example, means a lot to auditors who cut their teeth at Ernst & Young or KPMG, but it is also important to the broader business community.

Whether you have worked at Deloitte, KPMG, E&Y, or PricewaterhouseCoopers, or none of the above, you'll find something useful here.

If you are a consultant hoping to start your own firm as I did once - well, twice - or you are finishing your MBA and looking for that big break, you've come to the right place. This blog will be useful to everybody - except those lacking ambition.

A few more housekeeping items . . .

I write a lot. I promise to give you something new every weekday, but I'll write a bit more when the mood hits me. Also, I won't dwell exclusively on the Big Four; I'll give you some variety. For those of you who haven't worked for a Big Four firm, don't worry. I'll explain the lingo, though you can get some background at http://www.big4.com.

Most important - keep in touch! If you have any ideas or topics you would like me to cover, don't be shy. Either post a reply or e-mail me at mailto:tjohansmeyer@gmail.com. I look forward to hearing from you.

Tom Johansmeyer