Wednesday, October 19, 2005

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

6 comments:

Anonymous said...

Hi,
I have an offer from three firms --KPMG, Deloitte and PwC. People are warning me against KPMG, but that is really where I feel I want to be. Should I be worried that the firm will not exist maybe next year?

Robert Jungis said...

Tom,

I think it's high time the individuals face the music for what they're perpetrated with these frankly bullstuff tax shelters.

The way these bogus shelters work is that the broker-- in this case, it seems, KPMG-- create an illegal scenario and work hand in glove with attorneys who for stupendous fees write opinion letters for each investor stating the shelters are legitimate.

This was a neat ploy that gave the investor nearly a win-win situation. If the bogus tax shelter didn't attract IRS scrutiny, they saved tens of millions in tax. If they were snagged by the IRS, the attorney-generated opinion letters saved them from accuracy-related IRS penalties.

Although I claim no great familiarity with the Big Four and how they operate, I doubt such illegalities are systemic to KPMG's entire organization. How much more appropriate it is to nail the individuals and hold them personally responsible. At least they can sit in prison as an example. Can't send KPMG as a whole to jail, so nail the theieves in charge.

Just my opinion.

Big4 said...

Anonymous - regarding your decision for employment, I do lean toward Deloitte and PwC. PwC does great work, but the people at D&T called it a sweat shop. Of course, I can't imagine PwC being any worse than D&T.

Remember, I was in the consulting practice, not the audit side of the house.

I have mixed feelings about KPMG. Next year, they will still be around. I don't think they'll be allowed to go out of business (look at the recent settlement). If they do go under, it should be relatively easy for you to find a gig at one of the other three firms.

What makes KPMG interesting is that it is going through a transition right now. This is when things get crazy, and you'll be jumping right into the middle. You'll learn a lot about tumult and business change. But, keep in mind that this can be a scary experience.

If you have the stomach for it, I'd go for KPMG. Otherwise, PwC and Deloitte are excellent, safer choices.

Anonymous said...

Wow, you really do delete alot of your post

Big4 said...

I delete posts only because people are less interested in participating in a discussion and more interested in posting bland pitches for their own product offerings that do not contribute to the site.

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