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An expose of europes enormous financial scandal

Alamy This insouciance typified the state auditing had reached. Subsequent investigations showed that rank-and-file auditors at KPMG had indeed questioned how much the bank was setting aside for losses. Galbraith could have been prophesying accountancy a few decades later, now led by men of business rather than watchdogs of business. But over time, that narrow task was transformed by commerce. In the process it has spawned a multi-billion-dollar industry and lifestyles for its leading practitioners that could hardly be more at odds with the image of a humble number-cruncher.

They are the only players large enough to check the numbers for these multinational organisations, and thus enjoy effective cartel status. There are no serious rivals to undercut them.

  • Advising on post-crisis financial regulation has more than made up for the minor setback of 2008;
  • Left to prosper with minimal competition or accountability, the bean counters have become extremely comfortable;
  • Mix in the routine recruitment of senior public officials through a revolving door out of government, and the big four have become a solvent dissolving the boundary between public and private interests.

Despite the economic risks posed by misleading accounting, the bean counters perform their duties with relative impunity. The big firms have persuaded governments that litigation against them is an existential threat to the economy. They are free to make profit without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.

The financial scandal no one is talking about

KPMG abandons controversial lending of researchers to MPs Read more Conscious of their extreme good fortune and desperate to protect it, the accountants sometimes like to protest the harshness of their business conditions.

This is what passes for competition at the top of world accountancy. Some companies have been audited by the same firms for more than a century: As professionals, accountants are generally trusted to self-regulate — with predictably self-indulgent outcomes. Where a degree of independent oversight does exist, such as from the regulator established in the US following the Enron scandal and the other major scandal of the time, WorldCom — in which the now-defunct firm Arthur Andersen was accused of conspiring with the companies to game accountancy rules and presenting inflated profits to the market — powers are circumscribed.

When it comes to setting the critical rules of accounting itself — how industry and finance are audited — the big four are equally dominant. Their alumni control the international and national standard-setters, ensuring that the rules of the game suit the major accountancy firms and their clients. The long reach of the bean counters extends into the heart of governments. Mix in the an expose of europes enormous financial scandal recruitment of senior public officials through a revolving door out of government, and the big four have become a solvent dissolving the boundary between public and private interests.

There are other reasons for governments to cosset the big four. They are too few to fail. The major accountancy firms also avoid the level of public scrutiny that their importance warrants.

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Major scandals in which they are implicated invariably come with more colourful villains for the media to spotlight. When, for example, the Paradise Papers hit the headlines in November 2017, the big news was that racing driver Lewis Hamilton had avoided VAT on buying a private jet.

Left to prosper with minimal competition or accountability, the bean counters have become extremely comfortable.

  1. The big firms have persuaded governments that litigation against them is an existential threat to the economy. They are free to make profit without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.
  2. But over time, that narrow task was transformed by commerce. When it comes to setting the critical rules of accounting itself — how industry and finance are audited — the big four are equally dominant.
  3. Some companies have been audited by the same firms for more than a century.
  4. Galbraith could have been prophesying accountancy a few decades later, now led by men of business rather than watchdogs of business. When it comes to setting the critical rules of accounting itself — how industry and finance are audited — the big four are equally dominant.

Partners in the big four charge their time at several hundred pounds per hour, but make their real money from selling the services of their staff. The result is sports-star-level incomes for men and women employing no special talent and taking no personal or entrepreneurial risk.

Targeting growth like any multinational corporation, despite their professional status, the big four continue to expand much faster than the world they serve.

By 2016, across 150 countries, the big four employed 890,000 people, which was more than the five most valuable companies in the world combined. The big four are supremely talented at turning any change into an opportunity to earn more fees. Advising on post-crisis financial regulation has more than made up for the minor setback of 2008. They are consultancy firms with auditing sidelines, rather than the other way round.

With so many inadequate audits sitting on the record alongside near-unremitting growth, it is clear that in a market with very few firms to choose from, poor performance is not a matter of life or death.