BEN HARVEY: Why audit information-sharing fiasco could doom KPMG

I am sure I was not the only one who experienced an exhilarating flush of schadenfreude this week when KPMG’s over-paid shiny-bums were sprung improperly using information gleaned by its audit division to win new business.

KPMG is one of the so-called big four accounting firms alongside Deloitte, Ernst and Young and PricewaterhouseCoopers, the latter two of which now go by the thoroughly unimaginative names of EY and PwC (they really let the marketing departments take it out for a spin with those rebrands, didn’t they?).

The four firms used to just do accounting but have grown their businesses to offer a bewildering array of corporate offerings.

PwC’s traditional audit and assurance division is one of 18 business units.

There is a Muppet Labs-esque “Reinvention” division, a division called “Strategy&” (I don’t know whether that’s a typo or something the marketing team came up with in the time they had to spare after that light-touch rebrand) and an “Alliances and Ecosystems” division (which apparently helps people “think like a start-up and scale like a giant”).

The big four bundle their offerings under the catch-all of “professional services”. And yes it does sound like “happy endings” should be one of the business units.

When a company or a government is about to put something in the too-hard basket they call in the likes of KPMG to perform some consultancy kung-fu and find a solution.

They’re like the A-Team of the corporate world, if the A-Team were specialists in wank-word bingo.

Have a go at the corporate hand-on-dick exercise that is KPMG’s “Why work with us” mission statement.

“At KPMG, we bring opportunities to life. Working shoulder to shoulder with our clients, we blend human ingenuity and cutting-edge innovation to solve strategic challenges, discover new potential and deliver tangible value – faster.”

Good grief, what a load of crap. It’s like the marketing department ate a lifestyle magazine and then spewed on the internet.

One of the most important branches within each of the firms is the audit division.

Auditors are the most boring of all accountants, which is saying something. They act as “independent” third parties who sign off an organisation’s books to say all is above board.

Publicly listed companies, big private firms, not-for-profits, governments — they all must have their financial statements verified by an external auditor.

I used inverted commas around the word “independent” because the companies the auditors work for are paid by the companies they’re “independently” auditing, so there’s an in-built bias to say everything is fine.

KPMG is deep in the brown stuff at the moment because it had killed off any semblance of impartiality in a most flamboyant way.

Its auditors were sharing confidential information they learnt during audits of companies, handing secrets to other KPMG divisions which were trying to win professional services contracts with the companies being audited.

KPMG was playing gamekeeper and poacher.

It shouldn’t happen because there are protocols in place to stop confidential information leaking between divisions.

We used to call that a Chinese Wall but the PC police have suggested “ethical barrier” is more inclusive.

It’s all a load of bollocks because there is no way to stop a quiet conversation at the urinal but as it turned out, KPMG’s wall/barrier was more like a rusty chain-link fence that was two-feet high.

In 2024, a whistleblower, well, blew the whistle, on the scam.

Apparently the bosses didn’t read the bit on their website which detailed how they presided over a “purpose-led, values-driven culture focused on excellence, quality and integrity” because they ignored the warnings and buried the report.

KPMG’s executives should have noted the post-Watergate observation that it’s not the crime that gets you, it’s the cover-up.

The cover-up came to light when Senator Deb O’Neill used parliamentary privilege to air KPMG’s dirty laundry.

Chief executive Andrew Yates resigned. Head of audit Julian McPherson also quit, saying “matters have arisen for which I am responsible”.

Apparently Julian thought it sounded more respectable if he talked like Yoda.

The person left holding the tray of shit sandwiches is interim CEO Stan Stavros, who will surely need a supermarket aisle full of breath mints after chewing his way through his inbox.

A parliamentary inquiry into the affair kicks off on June 19.

The whole Happy Days gang from KPMG will be forced to come clean about their dark arts — or risk contempt of parliament.

Some observers reckon KPMG is too big to fail. That we have hollowed out the public service’s skill set to the point we are beholden to professional services firms.

It might be that the inquiry doesn’t land a blow that puts KPMG on the canvas for good but that doesn’t mean the firm is guaranteed to continue to exist — the banks could tread where MPs fear to.

KPMG owes an astonishing $550 million.

I don’t understand how you accrue that much debt when your main expense is staff (actually, yes I do, you pay your partners too much) but it’s there and with clients cancelling contracts and an inevitable lawsuit on the horizon the company will come perilously close to being in breach of its banking covenants.