This is a guest post from Professor Atul K. Shah reviewing 'Beancounters — The Triumph of the Accountants and How they broke Capitalism' by Richard Brooks, 342pp, Atlantic Books, £18.99
As Private Eye journalist, Richard Brooks has long been responsible for exposing corporate corruption, especially around tax avoidance and evasion. One story kept on repeating in his research — the role of the Big 4 global accounting firms — KPMG, PWC, Deloitte and EY — in not just helping corporations avoid tax, but even inventing and supplying bold tax avoidance schemes which would deprive countries of billions of dollars in taxes. He wrote the outstanding ‘Great Tax Robbery' to reveal all, and has now followed this with his latest ‘Beancounters', with equally insightful research, and a devastating expose of the people, practices and services of the Big 4 in creating global economic havoc and inequality. In spite of this, they remain untouchable.
Readers of this blog will not be strangers to the story, which is beyond fiction, and a cause of economic hurricanes all over the world. The Big 4 are a cartel that have brought the world to its knees economically, affecting our jobs, pensions, savings, and even bringing booms and recessions, making us homeless and deprived in the process. In spite of this, they continue to be top advisers to governments, helping shape their tax policies, running whole offshore islands and their regulatory policies, ensuring that while ordinary people pay taxes and stay above the law, corporations are allowed to cherry pick and avoid. Professional bodies and regulators have become totally captured by their power and reach.
The book is 280 pages long, and covers the history of accounting, including the origins of the Big 4 and their ethical and professional roots, to the growth and expansion in less than a hundred years to the global multi-billion dollar businesses they have become today. There are twelve chapters which cover a wide range of global scandals, and the profound contradictions of being auditors and advisers at the same time. The book reminds us that modern accountants set their own rules, enforce their own standards, influence laws and governments, and rarely go to jail. Whilst once their conscience regulated their actions, today its all about fees and rewards, and conscience has disappeared altogether. The facts that have been uncovered and collated are truly devastating and include
- Big 4 failure in warning of the global financial crash, and the cover-ups of their audit and regulatory failures after the crash
- Major exposes like FIFA, LuxLeaks and Panama Papers - LuxLeaks showed how one firm, PWC, was responsible for helping blue-chip global corporations avoid taxes with full complicity from the Luxembourg Tax Authorities
- The hugely conflicted nature of the services provided, reducing independence and scepticism, and to the contrary rubber-stamping highly questionable deals and transactions, including financial statements which are blatantly untrue and unfair
- The chameleon profit-seeking nature of these firms, which profit from booms and recessions, and also from new laws and regulations which they themselves help to write
- A total absence of any ethical leadership, and fluffy and vacuous cultural statements which mean nothing, and integrity & accountability are fully compromised by profits and greed. A recent culture review by the Financial Reporting Council is a whimper rather than a squeal against their deviant culture, and its corrosive effect on audit and accountability.
- Global when it suits, and local when it suits — when problems arise, they are because of rogue people, but to generate business, they promote their global presence as a core strength. Similarly, they claim to be professional in terms of skills, but not in terms of responsibilities or character.
- Government gets hit at both ends — through industrial scale tax avoidance manufactured by the Big 4, and also advisory contracts given to the Big 4 worth hundreds of millions of dollars. Revolving doors of politicians mean that their networks and influence is used by the Big 4 after they leave office.
- Active lobbying against unfavourable new laws and regulations both in the US and in Europe — something which would be far beyond public duties of an accountant with integrity and character
- Meddling with public infrastructure projects on an industrial scale, reaping huge fees without any responsibility for contractual failures, poor delivery and huge cost over-runs.
The book does not hide from pulling any punches or naming names, and is based on meticulous research and very well referenced to audit, tax and regulatory scandals all over the world. Even then, Brooks was unable to cover all of them due to the sheer scale of the abuses — he would need to write thousands of pages to be able to even remotely be comprehensive about the global damages wrought by the Big 4.
Brooks did give the Big 4 Heads a chance to respond and defend — two of them, Deloitte and EY declined, but KPMG and PWC did meet, though the answers they gave were lukewarm at best, and admitted very little guilt, even in the case of PWC actions in Luxembourg. What seemed very clear is that there is no one culture or ethic dominating the Big 4 apart from fees, revenues and profits, and reputation risks and fines are seen as business risks rather than critiques of culture, character and leadership. The huge size and influence of the Big 4, in both the public and private sectors, give them significant leverage which they continue to use with little social or civic responsibility. As Brooks research shows, they have often led the global regulatory race to the bottom, with the result that the undemocratic and powerful multi-national corporation continues to wreak havoc against nation states all over the world. With the help of the Big 4.
Professor Atul Shah is author of ‘Reinventing Accounting and Finance Education' and ‘The Politics of Risk, Audit and Regulation — A Case Study of HBOS' both published by Routledge.
Richard Brooks' book is available here, amongst other places, of course.
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Years ago I was talking to somebody working for Coopers & Slybrand – as was – she provided consultancy to the European Commission on telecomms an area I was active in. I mentioned “twisted pair cables” in the context of ADSL – she asked “what’s a twisted pair”. The big 4 – stupuid and incompetent. The big 4 remind me of IBM in 1980 – big, complacent. arrogant. In the case of government – there should be a moratorium on the use of the big 4 and indeed, an upper limit on the use of “consultants” – no outfit bigger than say 40 people.
Didn’t know what “twisted pair” was? Good grief, and she was a “consultant” on telecoms!!!!
There are, of course, genuine, quality consultants out there, who really can add value to an operation, but your story, Mike Parr, only reinforces the view I, and a lot of my colleagues in “bread and butter” O&M, had of some consultants, that they basically operated from a simple, single A4 crib sheet, most of which was taken up with the “one size fits all” mantra of “cut costs by cutting headcount”.
A woeful example of the same was recounted to me by a colleague at the MSF (as was) training centre in Bishop’s Stortford, where I attended a course in 1998.
The colleague came from Yeovil, and told the story of an American consultant coming into Yeovil to conduct an exercise – in cost-cutting, of course – which saw him reduce headcount on the dubious FIFO, or at least age-based considerations.
Not a wise approach, at the best of times, but it was a government site, so different rules probably applied. Anyway the approach turned out to be particularly disastrous in this case.
For the Yeovil factory was in the business of manufacturing aircraft for the MoD, and when it came to the crunch, one of the “old” employees the consultant had chopped was responsible for signing off aircraft for the MoD, and they had three aircraft that needed to be signed off.
So, they had to “buy” him back from Westinghouse at some expense, to get the aircraft signed off.
Whether the consultant was from one of the Big 4, I didn’t think to ask, as their profile was far less prominent in those days, but it would not surprise me, were that to turn out to be the case.
🙂
Why expect an accountant to know about twisted pairs. Do you know about macro hedge accounting?
I do not think it is rocket science to know a little about what twisted pair technology is meant to deliver (and does by large achieve, or so I’m told). On the other hand, macro hedge accounting is just mumbo-jumbo designed to confuse the world, and it also succeeds, but not for a beneficial reason
It’s why I left ASAP after qualifying!
It took me a year
The underlying problem, however is this; how do you introduce effective ‘fiscalism’ if the capacity to tax is undermined by the capacity of a profession (or two professions, lawyers and accountants) to circumvent at least a significant proportion of the typical taxes actually used by Government. The underlying problem (it seems to me) is that the taxes that are actually ‘cast iron’ effective are those that are the most difficult to avoid; typically taxes on land, or taxes taken directly at the point of transaction (PAYE, VAT, NHI). Any tax dependent on business or capital (profit is offered here solely as a ‘shorthand’ example; but anything that can be rationalised or requires to be interpreted ex-post by an accountant or lawyer) can almost certainly be circumvented (although perhaps only accessible to those with deep pockets). I believe this problem is absolutely fundamental.
I was advising De Beers in SA on their procurement strategy – suppliers and projects. After I had been researching there for about 3 months, the procurement manager called me in to show me two models for collaborative procurement he had been “sold” by an Arthur Anderson consultant. They were both mine from my research and book.
Phil, the manager, had let the guy prattle on about his amazing unique offer, and then turned on his screen with my models and asked Mr A A, is this what you mean?, with my (c) clearly visible.
He fell about laughing as the consultant slunk out. “Now that’s what I call borrowing your adviser’s watch to tell his client the time!” he quoted.
Never trust a Tory and never, ever consult the Big Four.
If the big 4 are so bad how do they keep growing. The ability of a member of the big 4 to organise and run a conspiracy is laughable let alone all 4 of them colluding together
I think gt and bdo have demonstrated the issue with the big audit market, the barriers to entry are huge as you can’t make any money without the it systems and the downside risk in addition to that cost is now massive ie 10m in fines for a bad audit.
One of the reasons they grow is because they offer a sort of security to councils and other politicians who don’t want to think things through, but do want to be able to redirect blame. Hence outsourcing etc.
Book is nearly £4 cheaper at this link, with free delivery; https://www.hive.co.uk/Product/Richard-author-of-Bean-Counters-Brooks/Bean-Counters–The-Triumph-of-the-Accountants-and-How-They-Broke-Capitalism/21817416
I’d recommend asking your local public library to order the book, but they’re on their knees.